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The Contrasting Fortunes Of AstraZeneca plc And GlaxoSmithKline plc

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.

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