When I first examined biopharmaceutical company Shire (LSE: SHP) for the Fool four years ago, it was on a roll. Its share price had soared by 70% over three years, and 137% over five years. Shire is still on a roll today.
This specialist business, which focuses on attention deficit and hyperactivity disorder, gastrointestinal diseases, human genetic therapies, and regenerative medicine, is a very different beast to pharmaceutical giant GlaxoSmithKline (LSE: GSK). Glaxo has always attracted far more investor attention and at the time that Shire yielded just 0.5%, Glaxo yielded 10 times as much at around 5%.
But I liked Shire then and I like it even more today, having just seen how stunning its long-term performance has been. It boasts the fourth best performing share price on the entire FTSE 100 over the last decade, returning 334.6% in that time.
It has also performed strongly over five years, with share price growth of 125%. By comparison, Glaxo grew just 7.67% over the same period and may be a stalwart in many a portfolio, but it has been through a troubled few years with unforced slip-ups. These have included the Chinese bribery scandal, and growing concerns about the sustainability of its drug pipeline as established treatments come off patent.
Dublin-domiciled Shire has been boosted by last year’s game-changing £22bn Baxalta link-up. While sales of legacy products rose a creditable 15% in the last full year, this drove underlying profits up a massive 47% to $3.4bn.
Big is beautiful
The mega-merger has created a £41bn behemoth that appears to have answered any pipeline concerns in one fell swoop, as Baxalta boasts a significant batch of drugs in late stage testing, while recently launched XIIDRA has enjoyed a rip-roaring debut. Although I’m a little disturbed to think that Shire could not replenish its pipeline from its own laboratories.
Shire’s valuation may look a little crazy right now at 73.94 times earnings, but so does forecast earnings per share (EPS) growth of a whopping 560% for calendar year 2017, which City analysts reckon will be followed by a modest but still respectable 16% in 2018. The stock has rarely been cheap anyway. With Shire you can forget the yield, currently just 0.53%, this is purely a growth play.
Get the balance right
The reverse seems to be true with Glaxo. You can forget the growth opportunities right now, with modest EPS forecasts of 8% in 2017 and 4% in 2018. This is primarily an income play, with a forecast yield of 5.5%, covered 1.4 times. The drugs pipeline remains a concern but its sideways shift into consumer healthcare and vaccines appears to be paying off, helping the company to full-year sales up 6% at constant exchange rates to £27.9bn, and core operating profits up 14% to £7.8bn.
Explosive growth stock Shire and income slow burner Glaxo may be in the same sector but offer dramatically different investor rewards. As such, they complement the strengths and weaknesses of each other very nicely, and would sit happliy alongside each other in a well-balanced portfolio.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.