Opinion: Bristol Myers Squibb Is a Buy -- but the Real Reason Why Might Surprise Investors

Bristol Myers Squibb (NYSE: BMY) was created via the combination of companies founded in 1858 and 1887. It has a proven history of survival in the highly competitive and innovative pharmaceutical industry. That's important to remember as investors examine the upcoming patent cliff for cardiovascular drug Eliquis in 2028. It will be a big revenue hit, but patent expirations are just a normal part of the drug business. Here's why Bristol Myers Squibb is still worth buying, and it has nothing to do with the big rumor.

A merger is unlikely

The big story around Bristol Myers Squibb over the past month or so was the rumor that AstraZeneca (NYSE: AZN) was in discussions to buy it. Bolt-on deals are pretty common in the pharmaceutical space, but this wouldn't be a bolt-on; it would be a mega merger. Industry watchers don't see a high likelihood that it will get done. In the grand scheme of investing, trying to invest around mergers and acquisitions isn't the best long-term plan, anyway.

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Focusing on the fundamentals is a much better idea. But, as noted, Bristol Myers Squibb's core story isn't great right now. One of its most important products, Eliquis, is about to lose patent protection. When that happens, competitors can sell generic versions of Eliquis, and Eliquis revenues are likely to decline sharply. It seems like a mistake to buy into that story.

But patent expirations are normal for a drug company like Bristol Myers Squibb. It isn't waiting around and hoping for a miracle; it has been working for years to develop new drugs to replace the revenues lost to patent expirations. It is already seeing solid results from new drugs like Camzyos, Opdualag, Breyanzi, and Reblozyl. And it has more new drug candidates in the pipeline, as well. In fact, the company's CEO has been talking up the depth of the pipeline, which he believes is the most impressive in a decade.

Don't buy Bristol Myers Squibb for the short term

Shares of Bristol Myers Squibb are up materially over the past year, but still below the peak levels of late 2022. So the stock isn't cheap, but neither does it look particularly expensive. Notably, the stock's 15x price-to-earnings ratio is well below the industry average of 26x. And while new drug developments don't always line up with patent expirations, the long-term history for Bristol Myers Squibb suggests it will eventually find new and innovative drugs to sell. In fact, it is already doing just that, even though it will likely need more successes to offset Eliquis.

If you are a long-term investor, you could do a lot worse than taking a risk on a historically successful healthcare stock like Bristol Myers Squibb while collecting its well-above market 3.7% yield. And if the company does get bought by AstraZeneca, well, that could just be icing on the cake.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AstraZeneca Plc and Bristol Myers Squibb. The Motley Fool has a disclosure policy.