Bristol Myers Squibb (BMY 0.34%) is one of the best-known healthcare companies in the world. Its roots go back to the 1800s, and it has continually evolved and gotten bigger over the years. Today, it generates more than $45 billion in annual revenue with its medications serving many illnesses. But it also faces challenges as multiple top drugs in its portfolio face losses in exclusivity.
Is this a stock that can generate life-changing returns, and potentially turn a modestly sized investment into $1 million?
Many growth catalysts, but are they enough?
For growth investors, the key question about Bristol Myers ultimately comes down to whether there's enough in the company's pipeline to offset the declining revenue from Eliquis, Revlimid, and Opdivo. Those are three of the company's top drugs, and they are losing patent protection this decade.
In Revlimid's case, it's already facing competition from generics, and its sales were down 41% last quarter (ended June 30) to less than $1.5 billion. But there's more pain to come as Eliquis and Opdivo generated $5.3 billion in revenue for Bristol Myers last quarter, which is already close to half of the company's top line ($11.2 billion). When you include Revlimid, those three drugs accounted for over 60% of revenue.
Bristol Myers has new products generating revenue, but they simply aren't significant right now. Its new-product portfolio generated a relatively modest $862 million in sales last quarter. But these are just the early stages. The company projects that by 2029, its new products could be bringing in over $25 billion in revenue.
The company has also generated more than $10 billion in free cash flow in each of the past three years; it can also lean on its strong financials to pursue acquisitions to help strengthen its growth prospects. Recently, the company announced plans to buy Mirati Therapeutics for up to $5.8 billion. In that deal, it locks up a promising cancer treatment in Krazati, which could generate $1.4 billion in revenue at its peak.
Given Bristol Myers' strong financials and the business' continued acquisitions, investors should feel confident about its plan to overcome the patent cliffs it is facing in the years ahead, and continue growing.
Is Bristol Myers stock a good deal?
Year to date, shares of Bristol Myers are down 20% as investors remain skeptical about the company's future. What could also be disheartening to investors is that over a five-year period, the stock's returns are flat. And even over the past decade, investors would only be up 17%. By comparison, the S&P 500 has soared 150% during that stretch.
Its lackluster returns mean Bristol Myers' valuation remains low. The stock currently trades at a forward price-to-earnings multiple of only 7. That's modest compared to the healthcare industry average of 19.
But there's also reason for the discount given the concerns about the company's growth. As of the end of June, it had $34.7 billion in long-term debt and $28.1 billion in current assets. Given the cash flow the business generates, it's not a huge risk, but that level of debt also can't be ignored.
It can be an impediment to long-term growth because if the company needs to pay that down, those are resources it potentially has to divert away from growth opportunities.
Does Bristol Myers have what it takes?
If you're investing $25,000 to $30,000, you would need Bristol Myers stock to at least be a 30-bagger for your investment to grow to $1 million. To multiply its value by 30, that means the company would be worth at least $3.6 trillion in the future. That's a lot of growth from the business.
Although much can change over the years, there isn't an obvious, huge catalyst in the cards for Bristol Myers that suggests it will start growing at a rapid pace to attract growth investors and send its valuation skyrocketing in the process.
The company is working on growing its business and making up for the loss of patent protection, but it's unlikely that this transforms into a fast-growing company anytime soon.
If you're looking for a good, relatively safe stock that also pays a high dividend (it yields around 4% right now), then this can be a good investment to hang on to. But if you're expecting Bristol Myers to make you a millionaire, even in the long run, you'll likely be disappointed.
