Bristol Myers Squibb (NYSE: BMY) looks attractive from a value perspective. For example, its dividend yield is a lofty 4% compared to the S&P 500 index's (SNPINDEX: ^GSPC) 1% and the pharmaceutical sector's average of around 1.5%. From a more traditional perspective, Bristol Myers Squibb's 17.5x price-to-earnings ratio is well below the industry average of 25x. Here's why it may not be as cheap as it looks and what needs to happen to change that.
There is nothing particularly unusual happening with Bristol Myers Squibb's business. That is important to highlight because the pharmaceutical industry is highly competitive, research-driven, and has a unique patent situation that materially complicates things even for the largest drug makers. The issue is that the patent protections for new drugs are time-limited, but research and development outcomes are unpredictable.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
That's the crux of the problem with Bristol Myers Squibb right now. Material patent expirations are occurring, including Revlimid and Pomalyst in 2026. And that will be followed by Eliquis, which is marketed with Pfizer (NYSE: PFE) in 2028. While patent expirations are common, the outcome is usually a material drop in revenue from the affected drugs. So Bristol Myers Squibb's top and bottom lines are going to be under pressure for a bit. If that's the case, the low P/E and high yield relative to the broader sector could simply be Wall Street pricing in the patent expirations.
Management isn't sitting around with its head in the sand. The company is actively looking for new drug candidates. And it actually has some attractive pipeline options in rare diseases, immunology, and cancer. If the company gets a couple of new blockbuster drugs approved, it could easily offset the hit from drugs that are losing patent protection. If that comes to pass, today's relatively low price will turn out to be a bargain.
#signal
There is nothing particularly unusual happening with Bristol Myers Squibb's business. That is important to highlight because the pharmaceutical industry is highly competitive, research-driven, and has a unique patent situation that materially complicates things even for the largest drug makers. The issue is that the patent protections for new drugs are time-limited, but research and development outcomes are unpredictable.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
That's the crux of the problem with Bristol Myers Squibb right now. Material patent expirations are occurring, including Revlimid and Pomalyst in 2026. And that will be followed by Eliquis, which is marketed with Pfizer (NYSE: PFE) in 2028. While patent expirations are common, the outcome is usually a material drop in revenue from the affected drugs. So Bristol Myers Squibb's top and bottom lines are going to be under pressure for a bit. If that's the case, the low P/E and high yield relative to the broader sector could simply be Wall Street pricing in the patent expirations.
Management isn't sitting around with its head in the sand. The company is actively looking for new drug candidates. And it actually has some attractive pipeline options in rare diseases, immunology, and cancer. If the company gets a couple of new blockbuster drugs approved, it could easily offset the hit from drugs that are losing patent protection. If that comes to pass, today's relatively low price will turn out to be a bargain.
#signal
2 months ago
