Bristol Myers Squibb trades at a 17.5x price-to-earnings ratio, below the pharmaceutical sector average, and pays a 4% dividend yield, above what peers offer. But a wave of patent expirations threatens the earnings behind that discount, and the pipeline meant to replace them hasn't delivered yet.
Bristol Myers Squibb's 17.5x price-to-earnings ratio sits well below the pharmaceutical industry's average of 25x. Its 4% dividend yield beats the S&P 500's 1% and the sector's roughly 1.5%. That gap looks like a bargain. It may instead be Wall Street pricing in a patent cliff still ahead.
A patent cliff is already underway
Revlimid and Pomalyst are losing patent protection in 2026. Eliquis, which Bristol Myers Squibb markets with Pfizer, follows with its own patent expiration in 2028. Patent expirations usually bring a material drop in revenue from the affected drugs.
So the company's top and bottom lines face pressure in the years ahead. The low price-to-earnings ratio and elevated yield may simply reflect that pressure rather than a mispriced stock.
New drugs would flip the math
Management is pursuing new drug candidates in rare diseases, immunology, and cancer. If a couple of those candidates turn into blockbuster approvals, they could offset the revenue lost to the expiring patents, and today's price would look cheap in hindsight instead of risky.
The company isn't yet at a point where investors can comfortably expect that outcome, so buying the stock still requires some faith in the pipeline. Bristol Myers Squibb was founded in 1858, and its history makes it seem likely, though not certain, that the company will deliver new blockbusters while the rest of the market frets over the patent cliff.
Source: The Motley Fool
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