Down 25%, Should You Buy the Dip on Bristol Myers Squibb?

Pharmaceutical companies spend a ton of money on developing new drugs. Most fail, but those that win regulatory approval and reach the market can generate billions of dollars in sales, all while patents bar competitors from copying them. Patents last for years, but they eventually expire.

At that point, a drug's sales plummet once generic copies become available to patients. This is often called the "patent cliff." It's why innovation is so essential for pharmaceutical stocks: Their companies must continually develop and bring new products to market to survive, let alone grow.

Bristol Myers Squibb (NYSE: BMY) is trading more than 25% off its high due to a steep patent cliff the company faces. Should you buy the dip?

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Investors face a real cliff-hanger, but there's hope

Patent cliffs are typical of the industry, but Bristol Myers Squibb faces an abnormally steep one. Generic competition caused Revlimid sales to decline by 48.9% to $2.9 billion in 2025, while Sprycel sales dipped 61.7% to $493 million. More pressing is the looming patent expiration of top sellers Eliquis and Opdivo, which combined for $24.4 billion in sales in 2025, roughly half of total revenue. Those drugs will lose U.S. patent protection between 2027 and 2029, paving the way for generics shortly thereafter.

Bristol Myers Squibb has a growth portfolio of rising drugs, which, excluding Opdivo, grew sales roughly 23% to $16.3 billion in 2025. Cobenfy is a groundbreaking antipsychotic drug for schizophrenia that launched in late 2024. It's now in a phase 3 study for treating psychosis related to Alzheimer's disease. Results are due in 2026, and if ultimately approved, the drug would be the first of its kind. Analysts estimate that Cobenfy could hit annual sales of $3.4 billion by 2030 if it wins approval from the Food and Drug Administration (FDA).

Why buying the dip could work out well

For now, the patent cliff is a slow slide, not a plunge. Analysts' estimates call for sales to decline from $48.2 billion in 2025 to $45.2 billion by the end of 2027. Analysts believe earnings will be flat in 2026.

Yet there's much to like here. Bristol Myers Squibb will pay you a nice dividend, currently 4.2%. The dividend costs less than half of earnings, so it's pretty safe and can endure even a sizable contraction in the business. Also, Wall Street is already very aware of the patent cliff; the stock trades at less than 10 times this year's earnings estimates. There are still risks, such as the possibility that Cobenfy fails its phase 3 study. But from a valuation standpoint, the stock definitely reflects reality.

If Bristol Myers Squibb succeeds with Cobenfy for Alzheimer's, there could be enough growth to replace the eventual lost sales from Eliquis and Opdivo, and perhaps even continue growing the business. The stock's valuation would likely rise along the way on positive sentiment, and investors would still be cashing those dividend checks.

If you're looking to swing big over a five-year time frame, consider buying the dip on Bristol Myers Squibb.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.