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Is ReNeuron Group plc a better buy than AstraZeneca plc?

Image: AstraZeneca. Fair use.

Shares in healthcare company ReNeuron (LSE: RENE) have risen by over 4% today after it released an encouraging trading update. It shows that the company is making good progress with its strategy, which is providing tangible results according to a further announcement made by the company today. Does this mean that it worth buying ahead of larger healthcare peer AstraZeneca (LSE: AZN)?

Upbeat progress

ReNeuron’s update includes information regarding the outcome of a Phase II clinical trial for its CTX cell therapy candidate for stroke disability. It showed positive results, with three of the 21 patients reporting a two-point or more increase in a grasping and lift test at three months post-treatment.

This was ahead of the target of two patients achieving that goal. The company will now continue with an application in the US and Europe for a pivotal clinical trial in patients living with disability post-stroke.

This is a significant milestone for the company and shows that its treatment has the potential to meet at least some of the high demand for treatments for chronic stroke disability. Clearly, there’s still some way to go in this endeavour, but it’s moving in the right direction.

Furthermore, ReNeuron announced positive news regarding the Phase I/II clinical trial of its hRPC cell therapy candidate. Its therapeutic programmes remain well-funded and it’s on target to meet its medium-term milestones at the present time.

Future potential

Clearly, ReNeuron has a bright long-term future. However, it remains a relatively small business, which is reliant on a smaller number of potential treatments than a sector peer such as AstraZeneca. Its larger peer has a more diversified pipeline so that if a potential treatment disappoints at a clinical trial, the company’s long-term future isn’t staked on it. As a result of this, AstraZeneca offers a much lower risk profile than ReNeuron.

Furthermore, AstraZeneca is on the cusp of improved financial performance following a major acquisition programme. It has been able to leverage a sound balance sheet and strong cash flow to make multiple purchases in recent years. This will see the company eventually replace the former blockbuster drugs that are now under threat from generics due to a loss of patents.

So, while AstraZeneca is expected to record a fall in profitability over the next couple of years, its longer-term future is much brighter. And with it trading on a price-to-earnings (P/E) ratio of 12, it offers excellent value for money.

As such, it offers lower risk than ReNeuron, as well as the potential for high rewards in the long run. Certainly, ReNeuron may prove to be a sound buy for less risk-averse investors and its share price is likely to move higher following today’s positive update. But for risk-averse investors, AstraZeneca remains the more appealing choice.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.