Morgan Stanley Warns of Sharp Downside for Bristol Myers Stock

Bristol Myers Squibb posted robust second-quarter results, beating Wall Street's expectations and raising its full-year guidance for both revenue and profit. Yet, despite the upbeat numbers, Morgan Stanley maintained its Underweight rating and a $40 price target-far below the $65.31 closing price on July 31. The bank's stance highlights a growing divide between short-term performance and long-term risk for investors in the pharmaceutical giant.

Strong Quarter, Cautious Outlook

For the second quarter, Bristol Myers reported adjusted earnings of $2.04 per share on $12.97 billion in revenue, outpacing analyst forecasts of $1.60 per share and $11.86 billion in revenue. Management raised its 2026 revenue outlook to $49.0-$50.0 billion and lifted its adjusted earnings forecast to $6.75-$7.00 per share. Operating expenses were also increased to $16.5 billion to support new product launches and research. The stock outperformed the S&P 500 on the day results were released, reflecting investor optimism about the company's near-term prospects.

Much of the quarter's strength came from Eliquis, a blood thinner co-marketed with Pfizer and part of Bristol Myers' legacy portfolio. The company now expects global Eliquis sales to grow 20%-25% this year, up from a previous estimate of 10%-15%. This upgrade accounted for roughly half of the company's improved guidance. However, Eliquis is set to lose U.S. patent protection soon, raising questions about the sustainability of these gains.

Patent Cliff and Pipeline Delays

Morgan Stanley's bearish view centers on the looming loss of exclusivity for several key drugs. According to the bank, Bristol Myers faces about $30 billion in revenue at risk from expiring patents by 2030. When a drug loses patent protection, generic competitors typically enter the market, causing sales of the original product to decline rapidly. The concern is that Bristol Myers' newer drugs and pipeline candidates may not generate enough revenue to offset these losses in the near term.

Pipeline setbacks have added to the uncertainty. The company's most anticipated late-stage trial, for the experimental blood thinner Milvexian, has been delayed, with results now expected in early 2027 instead of late this year. Similarly, Cobenfy, a schizophrenia treatment, has underperformed since launch, and key trial results for its use in Alzheimer's-related psychosis have also been pushed to 2027. These delays postpone potential growth drivers and keep analysts cautious about the company's ability to replace lost revenue.

Valuation Gap and Analyst Divide

Morgan Stanley's $40 price target is based on an estimate that Bristol Myers will earn $5.72 per share from late 2027 through mid-2028, applying a price-to-earnings multiple of 7-well below the company's 10-year average of 14 and the industry average of 15. This low multiple reflects expectations of shrinking earnings as patent expirations take hold. The bank projects total revenue will fall from about $49.9 billion in 2026 to $39.2 billion by 2028.

Despite these concerns, Bristol Myers stock has rallied in 2026, closing at $65.31 on July 31, near its 52-week high of $65.66. The stock is up nearly 18% year to date, outpacing the S&P 500, and has climbed about 15.7% in the past month alone. This strong performance has left Morgan Stanley's target looking especially bearish compared to the broader analyst consensus, which sits at $65.37, with some firms like Piper Sandler maintaining a Buy rating and a $75 target.

The debate over Bristol Myers' future echoes similar splits seen in other sectors, such as when Morgan Stanley took a contrarian stance on Charles Schwab after a strong quarter. In both cases, the core issue is whether current earnings can be sustained as business conditions change.

Key Catalysts and Risks Ahead

For investors, the next major events to watch include the FDA's decision on the cancer drug Iberdomide, expected by August 17, 2026, and late-stage trial data for Admilparant, a lung disease treatment, due in the second half of this year. The performance of Cobenfy's launch and the eventual readout for Milvexian in 2027 will also be critical in determining whether Bristol Myers can bridge the revenue gap left by expiring patents.

While the company's dividend yield of nearly 3.9% and strong cash flow may appeal to income-focused investors, the risk of declining earnings after 2026 remains a central concern. Growth-oriented investors may want to weigh the timing and likelihood of new product approvals and launches before making long-term commitments.

According to company filings, Bristol Myers Squibb's legacy drugs accounted for a significant portion of its $49.9 billion in projected 2026 revenue, with Eliquis alone representing a major driver. The company's research and development expenses have risen as it seeks to accelerate its pipeline, but delays in key trials have pushed back potential revenue contributions from new therapies. The average analyst price target as of July 31, 2026, was $65.37, highlighting the divergence between Morgan Stanley's outlook and the broader market view.

Patent cliffs are a recurring challenge for large pharmaceutical companies. When a blockbuster drug loses exclusivity, the resulting revenue drop can be steep and difficult to offset quickly. Companies often respond by investing heavily in research and acquisitions to build a pipeline of new products, but the timing and success of these efforts are uncertain. For investors, understanding the balance between current cash flow, future growth prospects, and the risk of sudden declines is essential when evaluating stocks in the sector.