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As AstraZeneca plc Slumps, Should You Sell And Buy Shire PLC?

Shire (LSE: SHP) and AstraZeneca (LSE: AZN) couldn’t be more different. 

Shire’s growth is exploding, and investors are clamouring to get their hands on the company’s shares. Excluding exceptional items, the company delivered earnings growth of 38% last year. Further earning growth of 32% is expected this year.

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And with this kind of growth on the cards, investors are willing to pay a premium to get their hands on Shire’s shares. Indeed, Shire currently trades at a forward P/E of 21.1 and is up 17.5% year to date. 

On the other hand, Astra’s shares have fallen by 8% year to date as investors turn their backs on the company. Astra’s earnings are expected to fall for the next two years, and the company currently trades at a forward P/E of 15. However, the company’s dividend yield of 4.4% is keeping some investors interested. 

Investor concerns 

Astra has fallen out of favour with the market during the past six months due to concerns regarding its research and development pipeline. Once touted as one of the best R&D pipelines in the industry, Astra is now falling behind as peers Roche, Bristol-Myers Squibb and Merck have all shown faster progress in bringing lung cancer treatments to market.

As a result, Astra has fallen behind in the development of new immuno oncology treatments and peers are stealing sales right from under its nose.

But to a certain extent, Astra is still a force to be reckoned with in the field of oncology. The company has more than 50 treatment trials planned for this year, with several launches planned between now and 2017. 

According to City analysts, three of these treatments have the potential to be blockbusters, which can return the company to growth by 2017; as targeted by management. 

And even though it has fallen behind its peers, Astra is expected to generate $6.9bn of oncology franchise sales by 2023, up from a low of $2.8bn reported this year. Profit margins are expected to expand significantly over this period. 

Unstoppable rise 

As Astra struggles, Shire is surging ahead. The company is snapping up smaller peers to boost growth and its treatment pipeline. 

What’s more, Shire’s flagship Vyvanse hyperactivity drug continues to report sales growth as the treatment’s user base expands. For example, at the beginning of this year the US Food and Drug Administration added binge eating disorder to the approved uses of Vyvanse.

Growth, income or value

Choosing between Astra and Shire is difficult, but in the end it comes down to your investing preference. If you’re looking for income with the potential for growth, Astra could be the best choice.

However, if you’re a growth investor who’s willing to sacrifice income and pay a premium for long-term growth, I’d say Shire is your best option. 

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

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