GlaxoSmithKline plc Vs AstraZeneca plc — Which Is The Better Bet For Income And Growth?


The FTSE 100’s two pharmaceutical giants, AstraZeneca plc (LSE:AZN) (NYSE:AZN.US) and GlaxoSmithKline plc (LSE:GSK) (NYSE:GSK.US) are facing many challenges in the years ahead. But which one is the better choice for income and growth during the next few years? 

Growth in a key region

AstraZeneca and Glaxo both released full-year 2013 results last week and AstraZeneca’s were highly impressive. In particular, one region where the company is pulling ahead of its close peer is in China, which is without a doubt a key growth market for both companies.

Unfortunately, during 2013 Glaxo was subject to a significant amount of negative press within China, causing the company’s sales to slump. Specifically, during the third and fourth quarter of last year Glaxo’s sales within China declined 61% and 29% respectively. On the other hand, AstraZeneca has seen its Chinese sales surge, 13% and 21% in the third and fourth quarters of last year respectively.

But it’s not all about China

However, it’s not all about China and we need to take into account other factors that may influence these companies. For example, Glaxo’s pipeline of treatments has long been the company’s most attractive quality, especially when the industry as a whole is suffering from the so called ‘patent cliff’.

Glaxo, in particular, had five new drugs approved during 2013 and forty more are in the late stage processes of coming to market. That being said, AstraZeneca is also driving hard to expand its pipeline of new treatments and the company has reportedly doubled its pipeline of late stage treatments during the past year. Actually, faster than expected pipeline growth has lead AstraZeneca’s management to declare that the company is likely to return to growth sooner than expected, as new treatments take up the slack of falling legacy drug sales.   

What about those shareholder payouts?

Of course, one of the most attractive traits of these pharma companies is their shareholders returns, or to be specific, their hefty dividend yields.  This where Glaxo really pulls ahead of AstraZeneca, as the company has a robust free cash flow, with plenty of cash available to return to investors.

For example, for the full-year 2013, Glaxo generated a free cash flow of more than £7.5 billion, of which the company returned more than £5 billion to investors through both dividends and share repurchases. Unfortunately, AstraZeneca only generated a free cash flow of $4.5 billion for full-year 2013, of which it returned around $3.6 billion to investors via the dividend.

So all in all, Glaxo’s shareholder payouts look safer and more attractive than those of AstraZeneca.

Foolish summary

Although AstraZeneca is putting in an impressive performance, Glaxo remains my favourite company of the pair. Overall, I feel that thanks to its hefty free cash flow and pipeline of treatments under development GlaxoSmithKline is your bettet bet for income and growth during the next few years. 

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> Rupert does not own any share mentioned within this article. The Motley Fool has recommended shares in GlaxoSmithKline.