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Bristol Myers Squibb Stock: Bull vs. Bear

By Alexander Carchidi and Adria Cimino – Dec 21, 2021 at 10:15AM

Key Points

  • Pharma companies often lose revenue when their drugs go off-patent.
  • Bristol Myers Squibb is anticipating significant revenue losses in the coming years.
  • While its older medicines will get hit by generics, new products will be coming online.

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The next few years might be hard for shareholders expecting outperformance.

With a market cap of more than $125 billion, Bristol Myers Squibb (BMY 1.04%) is one of the healthcare sector's largest competitors, but don't interpret that to mean it isn't a dynamic company. Though its earnings are shrinking and it isn't profitable at the moment, its revenue continues to expand via a constant drumbeat of regulatory approvals to commercialize its drugs.

But will that be enough to counter the looming loss of exclusivity for several of its winning products in the next few years? Let's look at a pair of opposing arguments on the subject and find out. 

A doctor talks with several of his colleagues as they sit at a table covered in binders and papers.

Image source: Getty Images.

This company has no shortage of opportunities to grow

Alex Carchidi: Bristol Myers is definitely going to face a few headwinds in the next few years, but rumors of the pharma giant's demise are very much exaggerated. 

Through 2025, management expects to lose around $13 billion in yearly revenue after the exclusivity protections expire for a few of its core drugs like Eliquis and Revlimid. In the same period, it also expects to gain $18 billion to $23 billion in new annual revenue from the ramp-up of its existing drug sales as well as a slew of anticipated new releases. 

To accomplish that, Bristol Myers will be working to expand the indications for its roster of currently approved drugs like Breyanzi, which is presently in three separate late-stage trials for additional uses. In total, its pipeline has 22 mid- to late-stage clinical programs and more than 60 early stage programs, every one of which has a chance to be a moneymaker in the future. 

Seeking new and expanded approvals is projected to enable a consistent rate of revenue growth in the sub-10% per year range through 2025. Importantly, rolling out new drugs and entering new disease markets with existing medicines will also reduce the concentration of the company's base of revenue, thereby protecting the top line against competitors. 

And all the while, management plans to keep pursuing share buybacks and dividend raises. Management also has stated that acquiring or investing in small and mid-size companies in oncology, hematology, and immunology will be a core part of its strategy for the rest of the decade; in the past 19 months, the company has struck major deals with at least 11 biotechs.

With $15.8 billion in cash and trailing free cash flow (FCF) of $14.6 billion, there's more than enough capital to keep making such growth-oriented deals moving forward.So while I doubt it'll outperform the market anytime soon, Bristol Myers could still be a solid investment -- and in my view, it's very likely to navigate the coming years gracefully. 

Facing patent expirations

Adria Cimino: Bristol Myers Squibb swung to a loss last year as recent acquisitions added to expenses. The pharmaceutical company bought Celgene in 2019 and small biotech MyoKardia last year. The acquisition of Celgene gave Bristol Myers one of the world's top-selling medications -- blood cancer drug Revlimid. Sales of the drug soared to more than $12 billion last year. But here's the problem; that product is facing patent expirations as of 2023. And Eliquis, Bristol Myers Squibb's second best-performing drug behind Revlimid, is set to face generic competition about three years later.

So what does the pipeline look like? Most of Bristol Myers' phase 3 candidates are currently marketed drugs aiming for an expansion into new areas. One of the entirely new phase 3 candidates is mavacamten, developed by MyoKardia for obstructive hypertrophic cardiomyopathy -- a disease that makes it difficult for the heart to pump blood.

It's still unclear whether these programs, if successful, can compensate for the loss of older blockbuster drugs. And Bristol Myers' pipeline of about 50 compounds lags behind the pipelines of some peers in terms of size. For instance, Pfizer's pipeline includes 94 candidates while Merck has 96 candidates in phases 2 and 3 alone.

Of course, Bristol Myers isn't the only big pharmaceutical company facing a patent cliff. Pfizer is a good example of another company with that looming ahead. But Pfizer's larger pipeline and position in the coronavirus vaccine market give it a big advantage over Bristol Myers.

Now let's look at share performance. Bristol Myers has underperformed the S&P 500 Index over the past five years. Recent acquisitions and pipeline products may change all of that. But right now, it may be too early to place any bets.

It's riskier than usual

Given the challenges with the upcoming losses of exclusivity, Bristol Myers is going to be in a transition for the next few years at a minimum. People who buy the stock today are exposed to the risk that its drug development and acquisition initiatives won't pan out to preserve the strength of the top line in the way that the company's leaders are planning. 

At the same time, the uncertainty also means that investors could see higher returns if it actually accomplishes its transition to new revenue sources. Therefore, if you're feeling just a little bit daring, Bristol Myers could be a great stock -- but if you're looking for a rock-solid pharma company that's not making any big changes anytime soon, it might be better to look elsewhere.

Adria Cimino has no position in any of the stocks mentioned. Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.

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