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Here's Why Bristol Myers Squibb Is Making A Mistake With Its Cash

By Brian Orelli, PhD and Keith Speights - Feb 24, 2021 at 12:15PM

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Boosting its pipeline could have a bigger effect on the earnings line.

Bristol Myers Squibb (BMY 0.30%) is generating plenty of cash flow and recently used $4 billion of its nest egg to pay down debt.

In this video from Motley Fool Live recorded on Feb. 8 (before the transaction was completed), contributors Brian Orelli and Keith Speights discuss why that might not be the best use of the pharma company's cash. They also opine on whether buying early or late-stage assets would give Bristol a better bang for its buck.

Brian Orelli: The company plans to retire $4 billion in debt. I'm not really sure if that's really the best use of their cash, although they have $16.2 billion on the books.

Keith Speights: I would agree. I don't think that's the best use of their cash. Bristol Myers Squibb pays a pretty attractive dividend and they'll continue to boost their dividend, I'm sure. If I were them, I would start looking to scoop up even more pipeline candidates. I think the most disappointing thing in Bristol Myers Squibb's entire Q4 update was their long-term forecast. They had pretty good 2021 guidance. But the long-term forecast is calling for, basically, I'm going to pull it up here, Brian. They're expecting low to mid-single-digit revenue compound annual growth rate through 2025. That's not exciting, low-to-mid-single digit.

But if they exclude Revlimid and Pomalyst, which are two of their fastest-growing drugs right now that came from the Celgene deal, excluding those two drugs, their rate goes up to low double-digit. The reason there is that Revlimid starts facing generic competition in limited volumes, but still facing generic competition next year. Revlimid has become their number one drug but it's about to start seeing sales decline because of generic rivals. I think it would be good for Bristol to take a look at maybe trying to find a good late-stage candidate personally.

Orelli: You think a fairly large company with multiple late-stage candidates on drugs that are on the market or just their pearls thing that they were doing before where they were trying to string together a whole bunch of different drugs?

Speights: You know, obviously, they're going to get more for their money if they got a really promising pipeline candidate. But I think if they could find a company that had a really good phase 3 candidate that wasn't too far away from potentially being able to win approval and actually generating sales, that might be a good deal. It'll be interesting to watch. I wouldn't be surprised if they do the other approach and find a company that already has products on the market.

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