The diet drug boom has added hundreds of billions of dollars to the combined market value of Eli Lilly (LLY) and Novo Nordisk (NVO). Although the fat revenue generated by diet drugs is obvious, the valuation of the two dominant companies is now very high.

Amgen Inc. (AMGN) looks attractive to investors seeking a more reasonable price for weight-loss drug stocks. Unlike the two leaders in the space, Amgen trades at a discount to the average U.S. stock, trading at 13.9 times forward earnings, compared with 46.6 times forward earnings for Lilly. While Amgen lags far behind Novo Nordisk, maker of Ozempic, and Eli Lilly, maker of Mounjaro, the field may have room for more competition.

Amgen is expected to release the results of two weight-loss drug studies next year. If the results are positive, the weight-loss drugs the company is developing could start to win it more favor from investors.

Jefferies analyst Michael Yee, who is bullish on Amgen, recently wrote that "the company's diet drug research is still nascent and investors have not fully valued it."

That's not to say Amgen will be able to catch up with Eli Lilly and Novo Nordisk. The latter two have big leads, and their pipeline of drugs seems to be the better. But in the diet drug market, third place is pretty good. Some analysts believe the market for weight-loss drugs could exceed $100 billion in annual sales, so capturing just 10% of the market could make it a blockbuster drug in terms of revenue.

Sometime next year, we'll find out just how important Amgen's weight loss portfolio is. Amgen is expected to release early study data in the first half of next year on an oral drug that the company has not yet disclosed. In the second half of 2024, Amgen expects to publish data from a mid-stage study of an injection-therapy therapy that has already helped patients lose up to 14.5% of their weight after 12 weeks of administration in a phase I trial.

Like Mounjaro and Ozempic, Amgen's injectable therapy targets the GLP-1 receptor, which helps regulate appetite. But Mounjaro also activates a second receptor, GIP, which Amgen's drug actually blocks. The approach is based on genetic studies that have shown that reduced activity of this receptor tends to lower people's weight.

If the drug eventually achieves higher efficacy in larger trials without any major safety concerns, a key advantage of the drug is its ease of use. It only needs to be injected once a month, while other GLP-1 drugs need to be given once a week. Management said that in addition to these two drugs, the company is also testing more preclinical compounds that target obesity.

"We don't think this is a one-step process," Murdo Gordon, Amgen's executive vice president of global commercial operations, said in an interview. "We try to cover everything, and we also think that this market could evolve into a portfolio market."

For investors, there is not much to lose at this stage, because Amgen's share price does not actually reflect how hot this area is. The company's stock is valued at a relative discount to peers because blockbuster drugs such as its bone health drug Prolia and autoimmune disease drug Otezla are set to lose patent protection later this decade. But in recent weeks, Amgen reported better-than-expected second-quarter profit after a disappointing first quarter, and the company's stock has rebounded.

In addition, investors can now start adding Horizon Therapeutics' roughly $5 billion in annual sales later this decade to their models. Amgen will buy the biotech company for $27.8 billion after reaching a settlement with the Federal Trade Commission. The deal may come with a hefty price tag, but the added revenue will help offset the pressure of patent expirations.

Amgen is clearly a latecomer to obesity. Assuming Amgen enters the market around 2027, Novo Nordisk and Eli Lilly will dominate. But given the high prices of these drugs and the vast market, there should be plenty of room for competition. The opportunity could be huge.