Bristol-Myers Squibb (NYSE: BMY) and Eli Lilly (NYSE: LLY) are shockingly similar companies. They're about the same size, and both face massive patent cliffs -- with Eli Lilly set to lose Zyprexa, Cymbalta, and others, and Bristol-Myers to lose Plavix, the second best selling drug behind Pfizer's (NYSE: PFE) Lipitor.

But, while I panned Eli Lilly earlier in the week, I think Bristol-Myers is a better buy for one major reason: its resources.


Market Cap


Cash and Short-Term Investments

Long-Term Investments

Total Investments

Bristol-Myers Squibb






Eli Lilly






Source: Capital IQ, a division of Standard & Poor's. All amounts in billions. 

You can do a lot with an extra $4 billion
Bristol-Myers built up it's nearly $10 billion nest egg by selling off its non-pharmaceutical assets and spinning off its baby formula business, Mead Johnson Nutrition (NYSE: MJN). Putting all its eggs in the drug-development business is risky, but it could pay off with substantially better returns compared to companies such as Pfizer (NYSE: PFE), Abbott Labs (NYSE: ABT), and Johnson & Johnson (NYSE: JNJ), all of which have taken a more diversified approach.

Now Bristol-Myers just needs to deploy some of that capital to help deaden the blow from the loss of Plavix. License a few drugs; maybe buy another development-stage drugmaker or two. There are a lot of options to stocking the pipeline when you have that much cash on hand. As long as Bristol-Myers Squibb doesn't buy a company large enough to justify adding another hyphen to its name, investors should be confident that the company has a chance at growing post-Plavix.

Putting money in management's hands
The downside to investing in Bristol-Myers is that you're essentially asking management to put your money to work. For each dollar you invest, nearly a quarter is just sitting there in short- and long-term investments, waiting to be deployed.

Not every drug Bristol-Myers licenses is going to be a success; it just gave back a drug to Exelixis (Nasdaq: EXEL) that it didn't think was worth paying to develop. But management needs to make good choices -- investing in drugs that are worth the risk -- in order to get enough hits to drive future revenue.

But let's face it: You're putting your investment in management's hands no matter what company you buy. Many aren't as dependent on external deals for growth, but management still has to execute in order for a company to prosper.

Willing to wait?
It's going to take a while. The company laid out its post-Plavix plan for investors earlier this year with earnings per share guidance for 2013 somewhere between last year's earnings and what Bristol-Myers is expecting to earn this year.

We may see the P/E increase a little from where it is now -- 11.4 times the middle of this year's expected earnings -- but not until investors are sure the bottom-line growth is on track. Without much total earnings growth expected over the next three years, capital appreciation may be hard to come by in the near term.

Fortunately there's a nice dividend that's paying you 5.1% of the share price to wait for a time when capital appreciation might be possible. The dividend is by no means guaranteed, but if Bristol-Myers invests its fortunes correctly, it should have enough cash flow to pay a dividend after Plavix falls from its pedestal.

With a 5% return, it would take a while to get to a 10-bagger, but in this market, slow and steady sure looks good. If the market falls further, the dividend yield should help Bristol-Myers keep from getting swept up with the crowd.

Pfizer is a Motley Fool Inside Value recommendation. Exelixis is a Rule Breakers selection. Johnson & Johnson is an Income Investor choice. Motley Fool Options newsletter has recommended buying calls on Johnson & Johnson. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Exelixis and has a disclosure policy.