For a business to seriously help its investors reach millionaire status before they retire, either its share price must consistently compound or it must pay a significant dividend regularly and steadily -- or (preferably) both. The shorter the time between the aspiring millionaire investor and their retirement date, the faster that compounding process will need to occur for the stock to be a worthwhile purchase.
For big pharma companies like Bristol-Myers Squibb (BMY 0.34%), the process of making their shareholders richer is based on their ability to repeatedly develop and commercialize lucrative new medicines. At a glance, this company looks like it would fit the bill as a wealth-building investment, but there are a few complications to the story.
What's the plan for the future?
Presently, Bristol-Myers Squibb has more than 30 programs in phase 3 development, including many candidates in key segments like oncology and immunology. Most of those programs aim to win new indications for medicines that are already approved and commercialized as treatments for other conditions, so it's working hard to squeeze more revenue and earnings out of its earlier research investments. Through 2025, management is anticipating the company's top line will increase at a compound annual rate of roughly 1% to 7%.
While it isn't expecting to pick up any new approvals in 2024 or 2025, recently approved treatments should provide more than $10 billion in annual revenue by 2026 to make that pace of growth happen. Acquiring promising pharmaceutical assets or small biotechs to shore up its development pipeline is also on management's agenda. And it's expecting to keep raising its dividend for the foreseeable future, adding to the 58% it increased over the past 10 years. At the moment, its dividend yield is 4.5%, which isn't half bad.
Importantly, the company's leaders have a new vision for the tempo and efficiency of its research and development (R&D) functions, and the impact of that shift should start to show up on the bottom line a bit after that. Bristol-Myers Squibb plans to submit about 10 investigational new drug (IND) packets to regulators each year, and increase the success rate of its preclinical investigations and clinical trials to somewhere in the ballpark of 20%. To top it off, it also wants to compress its drug development process to a median of only 6.5 years from the start of clinical trials to regulatory approval. But how does all that relate to its potential as a good retirement stock investment?
Don't count on Bristol-Myers Squibb to deliver high-powered returns
Mediocre near-term growth rate expectations aside, investors should be skeptical about the company's ability to achieve those three new goals. Many pharmas and biotechs have talked up their plans to approach drug development differently so as to advance candidates and gain regulatory approval for medicines faster or more reliably than in the past. But over the past two decades, new drugs have been taking longer and longer to cross the finish line. At this point, the average period between the start of the first clinical trial and obtaining regulatory approval is 90 months -- 7.5 years.
And as for success rates, with the exclusion of investigational cancer therapies, the probability of the average phase 1 candidate eventually being proven safe and effective, and getting Food and Drug Administration approval for sale, is already 21%. Add cancer programs into the calculation, however, and that figure drops to 14%. So unless management is planning to simply advance fewer oncology programs, it will need some secret sauce to boost its success rate in that challenging segment, and it hasn't disclosed anything concrete on that subject.
Pair those facts with Bristol-Myers Squibb's slow near-term growth expectations and its pattern of modest dividend hikes, and it's clear that this is not a stock for people who want a ton of growth. Over a decade or two, it is entirely possible that its dividend payouts could contribute to your retirement account getting significantly larger. Its payout ratio is 58%, so the payment is safe from getting cut for the moment.
But even over the long term, the historical data suggests you'd do better elsewhere. If you had purchased the stock 20 years ago, you'd have witnessed its trailing 12-month net income grow by a grand total of only 141% to a bit more than $8 billion. Over that same period, its dividend slightly more than doubled, and the total return of its shares was 322% -- well behind the S&P 500's total return of 508%. Sure, Bristol Myers Squibb shares could give you a small boost on your way toward a million-dollar portfolio. It's just not the type of investment you can expect to power tremendous growth, and there are faster-growing companies that could be better choices to help you reach that goal.
