The Contrasting Fortunes Of AstraZeneca plc And GlaxoSmithKline plc

AstraZeneca plc’s (LON: AZN) limp results place it in the shadow of rival GlaxoSmithKline plc (LON: GSK).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

GlaxoSmithKline

It’s unlikely that anyone will wake up one morning and decide “You know what? I just wish I had a shorter life expectancy. I’d really like to be sick as often as possible.”

Our well-being is important to us. As such, we’re not going to stop buying medicine any time soon. There’s a reason that AstraZeneca (LSE: AZN) (NYSE: AZN.US) and GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US), the UK’s two pharmaceutical behemoths, have a combined market cap of £125 billion. 

Both companies released results this week.

They each face the same major issue — sales of their top-selling drugs are in decline as cheaper, generic alternatives flood the market now that patents have expired for some of the blockbuster products.

How they stack up

AstraZeneca’s results weren’t good, acting as the main drag on the FTSE 100 yesterday, as its shares dropped 3% during early trading. The company is predicting a percentage decline in sales by as much as 5% — maybe more — this year.

The profitability of new drugs in the pipeline is being met with scepticism from analysts. Many of the drugs undergoing clinical trials may fail — it’s something we just don’t know, and as far as blockbuster potential goes, that’s even more difficult to predict. 2014 should be pretty dry as far as the pipeline goes.

GlaxoSmithKline on the other hand gave the market a boost following its projections for this year. Shares were up around 3% as the group forecast an increase in sales growth. The drugs producer had five new medicines approved by the FDA last year, which is something of a home run. Since 2009 GlaxoSmithKline has had more drugs approved by the regulator than any other pharmaceutical company.

Slowly, it appears GSK is returning to growth. The rollout of new products should help offset the competition from the generic drugs, while the benefits from restructuring and refocusing — such as the sales of non-core assets Lucozade and Ribena for £1.4 billion — should also reap rewards. The capital raised from those sales should end up poured back into the drug pipeline.

Where to put your money?

It appears clear that AstraZeneca is in a period of transition. Things will only get worse in America as from May the heartburn pill Nexium will face generic competition, with the same happening to cholesterol treatment Crestor a few years from now. These two drugs account for over a third of revenue. To fight this, costly acquisitions can’t be ruled out.

As far as GlaxoSmithKline goes, while its growth projections of 4% don’t take into account the negative impact of a strengthening pound (realistically, it’s more like 1%), its pipeline of new drugs is nothing to be sniffed at. In terms of innovation, it’s streets ahead of its rivals.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Mark doesn't own shares in any company mentioned. The Motley Fool recommends shares in GlaxoSmithKline.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »