Do Green Shoots At AstraZeneca plc Herald Spring Growth At GlaxoSmithKline plc?

When Pascal Soriot took over as chief executive at AstraZeneca (LSE: AZN) (NYSE: AZN.US) in 2012 many of its bestselling drugs were careering towards a patent cliff.

Worse, Astra had failed to find replacements, after suffering a string of setbacks with its pipeline of antidepressants, and medicines for diabetes and ovarian cancer. Sales had fallen by a painful £2bn in 2011.

The collapsing share price had left the dividend yield nudging a juicy 6%, but growth prospects remained perilous.

Cliff Edge Stuff

As last week’s Q1 results demonstrate, Soriot is safely steering Astra away from that cliff. Some drugs have inevitably crashed over the edge, notably heartburn blockbuster Nexium, where sales fell 3%, but there have been compensations such as new post-heart attack drug Brilinta, where sales leapt 45%.

AstraZeneca isn’t quite ready to burst into life, with Q1 core operating profit down 4% to £1.8bn. But that was partly due to currency headwinds: it is still up 15% on one year ago.

Soriot remains confident that sales will begin to climb steadily from 2017, when the drugs pipeline starts to flow once more, replenishing dwindling sales from old reliable blockbusters.

Thanks to a series of collaborations and joint projects, it now has 119 drugs in the clinical pipeline.

Growing Pains

Just as the green shoots started poking through at AstraZeneca, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) wilted on Chinese bribery accusations and plunging US vaccination sales.

And unlike AstraZeneca and fellow pharmaceutical company Shire, investors didn’t even have takeover speculation to feed on.

But this is the company I named as my top stock for 2015 because I felt it had serious recovery potential. It has made steady progress since rising 10% year-to-date, marginally ahead of the FTSE 100 at 7.5%.

Glaxo is also menaced by that patent cliff as falling sales of respiratory drug Advair hit revenues, and it battles against pricing pressures in the US and generic competition in Europe.

While cutting costs will save £1 billion over three years, what Glaxo really needs are solid new sources of revenue.

Everything’s Gone Green

Markets have responded warmly to its joint venture with Swiss drugmaker Novartis, which should reduce its reliance on blockbuster drugs, but that won’t show results until 2017 either.

Glaxo can boast 40 new projects in late stage development but again, investors will have to be patient.

The new season growth should eventually come, but it won’t come in spring 2015 or 2016. But at least you can seed your portfolio with Astra’s 3.62% yield and Glaxo’s 5.25% while you wait for the stocks to burst forth.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.