If you’re struggling to choose between GlaxoSmithKline (LSE: GSK) and AstraZeneca (LSE: AZN), you’re not alone.
You see, Astra and Glaxo have adopted different strategies for the next few years. Astra has gone down the growth route, while Glaxo is breaking itself apart, trying to unlock value for shareholders.
Targeting growth
Astra has laid out an ambitious growth plan to deliver annual revenues of $45bn by 2023, up from reported revenues of just under $26bn during 2013. And so far, the company is well on its way to hitting this target.
Indeed, alongside the company’s somewhat disappointing set of fourth-quarter results, Astra’s chief executive Pascal Soriot reaffirmed the group’s goal to return to growth by 2017. What’s more, as part of the plan, Astra announced that it was paying $600m to buy a respiratory drug business from Actavis. This follows a similar deal conducted in June of last year with Spain’s Almirall. The deal saw Astra pay $2.1bn for the rights to Almirall’s existing drugs and pipeline of experimental therapies.
Alongside acquisitions, Astra has developed an industry-leading immuno-oncology portfolio, with 13 clinical trials already underway. A further 16 trials are planned and a total of 14 potential new drugs are already in the process of Phase III testing or registration before sale. As many as 10 drug approvals are set for 2016.
Some of Astra’s new treatments are already hitting the market. Four of the company’s five key sales areas showed growth during 2014. These five “growth platforms” include lung drugs, diabetes, new heart drug Brilinta, emerging markets and Japan. Japan was the only market that didn’t experience growth last year.
Shareholder value
As Astra looks to grow, Glaxo is splitting itself apart and refocusing its treatment portfolio in an attempt to realise value for investors. In particular, the company is currently in the process of completing a complex three-way transaction with Novartis, which will see Glaxo dispose of its cancer drugs business but acquire Novertis’ vaccines division. Additionally, as part of the deal the two companies are looking to combine their over-the-counter units.
Further, during the past few weeks Glaxo has appointed investment banks to advise on a potential part-flotation of its HIV division. Analysts believe the division could attract a valuation of £15bn.
This all part of the company’s plan to unlock value for investors. Indeed, as Glaxo reshuffles its divisions they should attract a higher valuation than if they remained part of the Glaxo emprie. The Novartis deal is set to unlock $7.8bn in cash for Glaxo, £4bn of which the company is planning to return to investors through a special dividend.
Income vs. growth
Overall, Astra and Glaxo are two different companies for different investors. In particular Astra has now become a growth stock, as the company’s sales are set to double over the next eight years, while Glaxo has become the perfect stock for income investors.
With a yield of 5.3% at present levels, special dividend on the cards this year and the spin-off of the company’s HIV division set for 2016, Glaxo’s investors will be richly rewarded.
