Bristol Myers Squibb Isn't Nearly as Cheap as It Looks -- Here's the 1 Thing That Could Change That
Bristol Myers Squibb looks attractive from a value perspective, but the company is facing a material patent cliff that investors need to monitor. The patent protections for new drugs are time-limited, and research and development outcomes are unpredictable.
Intelligence analysis by Llama
Bristol Myers Squibb's business is not unusual, but the patent expirations for its drugs, including Revlimid and Pomalyst in 2026, and Eliquis in 2028, will put pressure on the company's top and bottom lines. The company needs a new drug to offset the hit from drugs losing patent protection.
Imagine you have a medicine that makes people feel better. But the company that makes the medicine has a problem - the special protection that keeps others from making the same medicine is going to run out soon. This means that the company will lose a lot of money because people will start buying the medicine from other companies. The company needs to find a new medicine to make up for the loss.
Analysis
Bristol Myers Squibb's Patent Cliff: A Material Concern for Investors
Bristol Myers Squibb's business is not unusual, but the patent expirations for its drugs, including Revlimid and Pomalyst in 2026, and Eliquis in 2028, will put pressure on the company's top and bottom lines. The patent protections for new drugs are time-limited, and research and development outcomes are unpredictable. This means that the company's revenue from these drugs will decline significantly once the patents expire.
The Need for New Blockbusters
The company needs a new drug to offset the hit from drugs losing patent protection. Management is actively looking for new drug candidates, and the company 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.
A Reasonable Bet for Long-Term Investors
If you are a long-term investor, however, it seems highly likely that this well-regarded drug company, founded in 1858, will deliver new blockbusters over the finish line. Given the history, that seems like a reasonable bet. But you'll need the fortitude to hold on while the rest of Wall Street frets that this healthcare stalwart has lost its way.
Key points
- Bristol Myers Squibb looks attractively priced when you consider its P/E and 4% yield.
- The company is facing a material patent cliff that investors need to monitor.
- The patent protections for new drugs are time-limited, and research and development outcomes are unpredictable.
- The company needs a new drug to offset the hit from drugs losing patent protection.
- Management is actively looking for new drug candidates, and the company has some attractive pipeline options in rare diseases, immunology, and cancer.
If Bristol Myers Squibb can deliver new blockbuster drugs, it could easily offset the hit from drugs that are losing patent protection. This would make the company's current low price a bargain.
If the company fails to deliver new blockbuster drugs, the patent cliff could have a significant impact on the company's revenue and profitability.
