Bristol Myers Squibb: Is it an undervalued pharmaceutical stock?

Bristol Myers Squibb is a global biopharma company known for leading therapies in oncology, immunology, and cardiovascular disease. While legacy drugs like Eliquis and Opdivo face looming patent expirations, the company is shifting toward a younger, diversified portfolio and expanding its pipeline. The question is: Can Bristol Myers Squibb sustain long-term growth and continue delivering value for shareholders?

This is not a financial advice. I am not a financial advisor and I only do these posts in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that I do not own any shares in Bristol Myers Squibb at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Bristol Myers Squibb, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Bristol Myers Squibb is a large American pharmaceutical company formed in 1989 through the merger of Bristol-Myers and Squibb. It ranks among the largest pharmaceutical companies globally and operates in one segment: the discovery, development, licensing, manufacturing, marketing, and sale of biopharmaceutical products. The company focuses on developing medicines for serious diseases in oncology, hematology, immunology, cardiovascular conditions, fibrotic diseases, and neuroscience. Some of its key products include Eliquis for stroke prevention and the treatment of blood clots, Opdivo and Yervoy for various cancers, Revlimid and Pomalyst for multiple myeloma, and Orencia for autoimmune conditions such as rheumatoid arthritis and psoriatic arthritis. The company develops a wide range of therapies, from small molecule drugs to biologics, including more complex platforms such as CAR-T cell therapies and protein degraders. Its strategy combines the scale and global infrastructure of a large pharmaceutical firm with the speed and scientific focus typical of biotech companies. This approach supports its efforts to deliver transformative treatments in areas of high unmet need while generating sustainable long-term returns for shareholders. Its R&D activities are supported by a robust internal pipeline and a broad network of alliances, acquisitions, and licensing agreements, which help supplement innovation and mitigate development risk. Like most pharmaceutical companies, Bristol Myers Squibb benefits from a natural moat based on patent protections and regulatory exclusivity. These intellectual property rights give the company time-limited monopolies on its drugs, shielding them from generic competition and allowing strong pricing power during the exclusivity period. The company’s pipeline and commercial success depend heavily on its ability to maintain these protections while continuously developing or acquiring new therapies to replace aging products. In addition to its legal moat, Bristol Myers Squibb has built scientific expertise across multiple therapeutic platforms and maintains a strong manufacturing and distribution footprint that supports global commercialization.

Management

Chris Boerner serves as the CEO of Bristol Myers Squibb, a role he assumed in November 2023 after nearly a decade with the company. Since joining Bristol Myers Squibb in 2015, he has held a range of senior leadership roles, including Chief Commercialization Officer and Chief Operating Officer, where he played a key role in driving global commercial strategy and overseeing the launch and lifecycle management of several key medicines. His leadership has spanned critical functions, providing him with a deep understanding of both the scientific and commercial aspects of the business. Prior to his time at Bristol Myers Squibb, Chris Boerner held positions of increasing responsibility at Seattle Genetics and Genentech, where he helped shape oncology commercial strategies in highly competitive therapeutic areas. Earlier in his career, he worked as a consultant at McKinsey & Company, advising clients across the healthcare industry. He holds a BA in Economics and History from Washington University in St. Louis and earned both his MA and PhD in Business Administration from the Haas School of Business at the University of California, Berkeley. In addition to his executive responsibilities, Chris Boerner serves on the Executive Committee of the Biotechnology Innovation Organization (BIO) and is a member of the National Council for Arts and Sciences at Washington University, reflecting his ongoing engagement with the broader healthcare and academic communities. Although his tenure as CEO is still in its early stages, Chris Boerner has articulated a clear long-term vision for the company. He has outlined a strategic roadmap built around three distinct phases: a near-term growth period, a transition phase, and the pursuit of sustainable top-tier growth. His detailed commentary on how each of these phases is expected to unfold demonstrates both clarity of thought and a strong commitment to long-term value creation. Coupled with his extensive industry experience and a decade of service within the company, I believe Chris Boerner is well-prepared to lead Bristol Myers Squibb through its next chapter.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Bristol Myers Squibb has had some underwhelming years from 2019 to 2021, where ROIC was below 10%. Since 2022, ROIC has been above 10% and has increased each year, which is promising - even though it hasn't returned to previous highs. The dip from 2019 to 2021 was primarily due to significant acquisition and integration costs, most notably from the acquisition of Celgene in 2019. The company has continued to make strategic acquisitions since then, which still weighs on ROIC. While Bristol Myers Squibb does not explicitly highlight ROIC as a core financial metric in its communications, the recent upward trend suggests an implicit focus on improving capital efficiency. Once the company fully digests the impact of its recent acquisitions, we may see ROIC rise back to historical levels above 20%.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Equity has declined every year since 2019, mainly because of how Bristol Myers Squibb has chosen to allocate its capital. In 2019, the company acquired Celgene in a $74 billion deal. Much of what they paid for—such as patents and drug research - doesn’t count toward equity under accounting rules. Since then, they’ve continued making acquisitions, buying back shares, and paying dividends. All of these actions reduce reported equity, even though they can be part of a long-term strategy to create value. So while equity is lower on paper, it doesn’t necessarily mean the underlying business is weaker.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Bristol Myers Squibb has delivered positive free cash flow for all ten years. The company managed to generate its second-highest free cash flow ever in 2024, which is very encouraging. While the levered free cash flow margin hasn't returned to its historical peak, it reached its highest level since 2021 and marks the third-highest level ever. This shows improving cash efficiency, even during a period of elevated R&D investment and acquisition activity. Bristol Myers Squibb uses its free cash flow to fund business development - such as clinical trials, pipeline expansion, and acquisitions - while also paying down debt accumulated from prior deals. At the same time, it remains committed to shareholder returns. The company has paid dividends for 93 consecutive years, and investors can expect a consistent stream of dividends going forward as free cash flow continues to grow. Stable and growing free cash flow is particularly important in the pharmaceutical industry, where earnings can fluctuate due to drug patent expirations and regulatory events. In this context, Bristol Myers Squibb's ability to consistently generate solid free cash flow is a strong signal of underlying business health and effective capital allocation. The free cash flow yield is at its highest level in more than a decade, which suggests that the shares are trading at a very attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to investigate is debt. It is crucial to determine whether a business has a manageable level of debt that could reasonably be repaid within a three-year period. To assess this, I divide the total long-term debt by the company’s current earnings. Looking at Bristol Myers Squibb’s financials, the company reported a negative EPS in 2024. However, using 2023 earnings for the calculation, the company currently has about 6,1 years of earnings in debt, which is higher than I would like to see. That said, the elevated debt level is largely the result of acquisitions, including its largest ever - Celgene for $74 billion - as well as more recent deals for Karuna and RayzeBio. So while the ratio is not ideal, it has a clear explanation and doesn’t necessarily keep me from considering the company as an investment. Management has also stated that they are committed to paying down debt, which suggests the debt-to-earnings ratio should improve over time.

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Risks

Competition is a major risk for Bristol Myers Squibb because it operates in a highly dynamic and innovation-driven industry. Its long-term growth depends heavily on the success of new product launches, uptake in existing markets, and the ability to secure favorable positioning for its therapies. In many of its key treatment areas - particularly oncology, immunology, and cardiovascular - there is intense competition from other pharmaceutical companies developing new treatments with improved outcomes, better safety profiles, or more convenient dosing regimens. This competitive pressure is especially visible in immuno-oncology, where Bristol Myers Squibb’s Opdivo competes with a growing number of therapies, including new checkpoint inhibitors and combination regimens. As the field evolves, newer treatments may outperform existing ones in specific indications or offer more compelling clinical data, shifting market share away from older therapies. Another challenge is the evolving expectations of healthcare providers and payers. New therapies that are viewed as more cost-effective, safer, or easier to administer can receive better insurance coverage or faster market uptake. Even perceived differences in clinical benefits can have a meaningful impact on how doctors and patients choose among available treatment options. In some cases, competitors may gain an advantage through stronger marketing efforts, better data presentation, or more successful partnerships with healthcare systems. Market access is also a key battleground. As competitors form alliances, secure new indications, or expand into different geographies, Bristol Myers Squibb must constantly adapt its commercial strategy to maintain or grow market share. Even small shifts in label requirements, safety warnings, or new clinical data can impact physician preferences and reimbursement decisions. Finally, the company also faces a broader strategic challenge: the pace of innovation in biopharma is accelerating. Rapid scientific advancements in fields like cell therapy, gene editing, and targeted therapies create an environment where leadership is never guaranteed.

Patent losses represent one of the most significant risks facing Bristol Myers Squibb. The company’s long-term success relies heavily on market exclusivity for its key products, which is primarily protected through patents. During the exclusivity period, Bristol Myers Squibb can sell its drugs without direct competition, often at premium prices - crucial for recovering the high costs of drug development and generating strong margins. Once a patent expires—or is successfully challenged by a competitor - other companies can launch similar or alternative therapies, typically at significantly lower prices. This often results in a rapid and substantial decline in sales of the original product. A clear example is Revlimid, one of the company’s top-selling drugs, which lost patent protection in 2021. Revenue from Revlimid fell from $12,8 billion in 2021 to just over $1,4 billion in 2024. This pattern is not unique to Revlimid. Other major products are approaching similar cliffs. Patents for Eliquis are set to expire in 2026, and for Opdivo in 2028. These are among the company’s most valuable drugs, and losing exclusivity could create a sizable revenue gap unless offset by successful new product launches. Compounding the risk, legal challenges from competitors can sometimes lead to earlier-than-expected patent losses. In some countries, patent protection is weaker, and courts have already permitted generic versions of Eliquis to enter the market ahead of schedule. In other cases, Bristol Myers Squibb has entered into settlements allowing generic entry before the full term of exclusivity expires. These factors add a layer of unpredictability, making it difficult to estimate both the timing and severity of revenue declines.

Laws and regulations represent a significant and growing risk for Bristol Myers Squibb due to the highly regulated nature of the pharmaceutical industry - particularly in the U.S., where the company generates a large share of its revenue. Every aspect of its business, from drug development and clinical trials to pricing, marketing, and distribution, is subject to extensive oversight from multiple government agencies. One of the biggest current challenges is political and legislative pressure to reduce drug prices. The Inflation Reduction Act, signed into law in 2022, is a key example. It allows the U.S. government to set prices for certain high-cost Medicare drugs, including Eliquis starting in 2026 and Pomalyst in 2027. This marks a shift toward government-imposed price controls and is likely to result in lower reimbursement and reduced margins. Other policy changes, like rebates for price increases that outpace inflation and redesigns of Medicare Part D cost-sharing, will also affect how much Bristol Myers Squibb earns from its therapies. In addition to federal reforms, individual U.S. states are passing or considering legislation that affects drug pricing, reimbursement, and transparency. These state-level actions could reduce patient access, limit coverage, or require changes in how the company sets prices or distributes medicines—potentially reducing revenues or increasing compliance costs. Regulatory complexity isn’t limited to pricing. The company must comply with strict manufacturing, labeling, safety monitoring, and marketing rules enforced by the FDA and its international counterparts. Non-compliance can result in penalties, recalls, or even withdrawal of product approvals. Delays in regulatory approval also slow the launch of new therapies, limiting revenue growth. As regulatory expectations continue to evolve - particularly in areas like post-market safety surveillance, risk mitigation programs, and marketing compliance - costs and risks increase. Additionally, regulatory barriers can hinder M&A activity, a critical part of Bristol Myers Squibb’s strategy to replenish its pipeline. New scrutiny around mergers in the sector may limit the company’s ability to acquire innovative assets to replace revenue lost from expiring patents.

Reasons to invest

Bristol Myers Squibb’s product portfolio is a core reason to consider the company as an investment. The business has shifted from relying heavily on a few mature blockbuster drugs to building a younger, more diversified growth portfolio that is now driving the majority of revenue. In 2024, this portfolio accounted for over half of total sales and delivered double-digit revenue growth, highlighting its rising importance to the company’s long-term strategy. Several key products illustrate the strength and momentum behind this transformation. Camzyos, used to treat obstructive hypertrophic cardiomyopathy, continues to gain traction and is now considered a standard of care in its category. The product shows strong persistency and demand, aided by label updates that have made it easier for physicians to prescribe and manage patients. Reblozyl also stands out with over 70% revenue growth, driven by increasing adoption in both the U.S. and international markets, particularly in newly approved uses for anemia associated with myelodysplastic syndromes. Breyanzi, a CAR-T cell therapy, doubled its sales year over year thanks to its compelling clinical profile and growing use across multiple indications. Meanwhile, Opdualag - a combination of two immuno-oncology agents - has become a standard of care in first-line melanoma in the U.S. and continues to gain traction abroad. The company is also re-establishing its presence in neuroscience with Cobenfy, the first new mechanism of action for schizophrenia in decades. Launched in late 2024, Cobenfy has already reached approximately 1.000 prescriptions per week. Early feedback has been highly positive, particularly regarding its ability to address not only positive symptoms but also negative and cognitive symptoms - areas where previous treatments have fallen short. With strong access secured across Medicaid and Medicare and commercial coverage expanding, Cobenfy is positioned to become a meaningful growth driver well into the next decade. Taken together, these developments reflect a company actively reshaping its portfolio, with promising products across multiple therapeutic areas and a clear focus on long-term, sustainable growth.

Bristol Myers Squibb’s pipeline is one of the most compelling reasons to consider the company as a long-term investment. CEO Chris Boerner has outlined a three-phase vision for the decade: a near-term growth period, a transition period, and a return to sustainable top-tier growth in the latter half. While many investors recognize the first two phases, management believes the longer-term potential of the pipeline remains underappreciated by the market. The company expects to launch over 16 new products by 2030, most of which are anticipated to be first- or best-in-class. These therapies, along with more than 30 indication expansion opportunities, are expected to reshape Bristol Myers Squibb’s commercial portfolio and help offset the impact of upcoming patent expirations for key drugs like Eliquis and Opdivo. Bristol Myers Squibb is now entering a data-rich period, with 15 or more registrational trials expected to read out by the end of 2025. Several high-profile programs are already ahead of schedule. For example, the pivotal study for Camzyos in non-obstructive hypertrophic cardiomyopathy is expected to deliver results earlier than planned. Similarly, the Alzheimer’s disease psychosis trial for Cobenfy has been accelerated by more than a year. Management has also placed a strong emphasis on improving R&D productivity. By reassessing priorities and concentrating resources on the most promising assets, the company has accelerated development timelines and improved execution. At the same time, it has shown discipline in discontinuing programs with weaker prospects, as seen with cendakimab and Zeposia in ulcerative colitis. In summary, Bristol Myers Squibb’s pipeline is not only deep and diverse, but also increasingly well-executed. The next two years are filled with potential catalysts that could reduce uncertainty around the future product base and bring greater clarity to the company’s long-term growth outlook.

Operational efficiency is becoming an increasingly important part of the investment case for Bristol Myers Squibb. Management has made it clear that the company is not just investing in growth but also transforming how it operates to become leaner, more agile, and more focused. In 2024, the company completed the bulk of a $1,5 billion strategic productivity initiative, realizing $1,1 billion in savings. Building on that progress, Bristol Myers Squibb has now launched an expanded program targeting an additional $2 billion in run-rate operating expense savings - half of which is expected to be realized in 2025, with the rest by 2027. Unlike the earlier savings, which were largely reinvested, this next wave is expected to drop directly to the bottom line, improving profitability. The company is achieving these savings through two main avenues: optimizing its organizational design and driving operational efficiencies. These efforts include streamlining the workforce, leveraging technology more effectively, and eliminating redundancies across functions. The goal is not just to cut costs, but to build a company that can move faster and operate more effectively, particularly as it navigates through patent expirations and ramps up investment in its pipeline and new product launches. This operational sharpening also gives Bristol Myers Squibb greater financial flexibility. Management has emphasized that the savings will help fund high-priority growth areas, such as the launch and development of Cobenfy and other late-stage pipeline assets. It also supports the company’s ability to invest in commercial execution, as seen in the progress made with Camzyos, Breyanzi, and Opdivo. In short, by actively managing its cost base and aligning resources with its strategic priorities, Bristol Myers Squibb is improving its ability to execute, reinvest, and grow. This focus on operational excellence adds another layer of confidence in the company’s ability to deliver value to shareholders over the long term.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculator for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 3,86, which is from the year 2023 (EPS was negative in 2024). I have selected a projected future EPS growth rate of 8%. Finbox expects EPS to grow by 13% in the next five years, but I find it too optimistic. Additionally, I have selected a projected future P/E ratio of 16, which is double the growth rate. This decision is based on Bristol Myers Squibb's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $32,86. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Bristol Myers Squibb at a price of $16,48 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 15.190, and capital expenditures were 1.248. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 874 in our calculations. The tax provision was 554. We have 2.028 outstanding shares. Hence, the calculation will be as follows: (15.190 – 874 + 554) / 2.028 x 10 = $73,32 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Bristol Myers Squibb's free cash flow per share at $6,87 and a growth rate of 8%, if you want to recoup your investment in 8 years, the Payback Time price is $78,92.

Conclusion

Bristol Myers Squibb is an intriguing company with solid management. It benefits from a moat built on patent protections and regulatory exclusivity. While return on invested capital was underwhelming between 2019 and 2021 due to large acquisitions and integration costs, it has improved over the past three years, which is encouraging. The company is also growing its free cash flow, and its levered free cash flow margin recently reached its third-highest level in a decade. Competition is a significant risk, as Bristol Myers Squibb operates in fast-moving therapeutic areas where newer treatments with superior efficacy, safety, or convenience can quickly shift market dynamics. Patent losses are another major concern, as the company’s most profitable drugs depend on market exclusivity. When patents expire or are successfully challenged, revenue can decline sharply - as seen with Revlimid. With key drugs like Eliquis and Opdivo approaching loss of exclusivity, the pressure to replace lost sales with new launches is intensifying. Laws and regulations also pose a growing risk. Changes to drug pricing policies, reimbursement frameworks, and compliance requirements - particularly in the U.S. - could materially impact profitability. That said, Bristol Myers Squibb’s product portfolio is a key strength. It now features a younger, more diversified mix of therapies that account for over half of total revenue and are delivering strong growth. Products like Camzyos, Reblozyl, Breyanzi, Opdualag, and the newly launched Cobenfy show that the company is successfully replenishing its portfolio across multiple therapeutic areas. Its pipeline further strengthens the long-term case. Management expects more than 16 new product launches and over 30 indication expansions by 2030, many of which are expected to be first- or best-in-class. The company is also entering a data-rich period with several pivotal trials already ahead of schedule. Operational efficiency adds another layer of appeal. Through a $3.5 billion cost-savings initiative - much of which is expected to drop to the bottom line - Bristol Myers Squibb is becoming leaner and more agile, allowing it to reinvest more effectively in its growth priorities. I believe Bristol Myers Squibb is a well-run company with long-term potential, especially for dividend-focused investors. However, given my current exposure to the healthcare sector, I will not be investing in the company at this time.

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