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Why GlaxoSmithKline Beats AstraZeneca and Shire

By Alan Oscroft - Apr 12, 2013 at 11:25AM

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GlaxoSmithKline triumphs over AstraZeneca and Shire in the pharmaceuticals sector battle.

LONDON -- After offering my pick of our telecom companies last week, today I'm turning my attention to the FTSE 100 Pharmaceuticals and Biotechnology sector. This time there are three companies that make the top flight -- GlaxoSmithKline (GSK 1.88%) (GSK 0.65%)AstraZeneca (AZN 2.32%) (AZN 1.93%) and Shire (SHP).

I'll start with a few fundamentals:

Market cap 76.9 billion pounds 41.5 billion pounds 10.9 billion pounds
Share price 1,576 pence 3,308 pence 1,992 pence
Share price growth 13% 19% -1.3%
Historic EPS growth -1% -12% -14%
Forward EPS growth 2% -18% 68%
Historic P/E 11.8 7.0 21.6
Forward P/E 13.5 9.6 13.3
Historic Dividend 5.5% 6.3% 0.6%
Historic Cover 1.5x 2.3x 7.7x
Forward Dividend 5.1% 5.5% 0.6%
Forward Cover 1.5x 1.9x 11.8x

Share price growth is over the past 12 months, historic figures are for December 2012, forward figures are based on December 2013 forecasts.

I'm going to reject Shire, for a couple of reasons. Firstly, it isn't paying any meaningful dividends yet, and if I'm considering investing in top FTSE 100 shares, I want to see mature companies offering decent annual income.

Shire also seems a little too specialized to me, with a large proportion of its annual turnover coming from just a couple of relatively minor therapeutic areas.

The giants
That brings me to the battle of the giants, and at the moment I can see only one winner. AstraZeneca has been suffering falling earnings in recent years, largely because of the famous "patent cliff" of losing intellectual protection for some of its blockbuster drugs, and increasing competition from generic drug manufacturers.

AstraZeneca has also lagged GlaxoSmithKline in expanding into new areas of biotechnology, with its acquisition record not being a glowing success.

Last month, AstraZeneca announced a new strategy for returning to growth, and the firm's new chief executive, Pascal Soriot, does seem to be the sort of person to get things done. But to me, I thought the announcement lacked meat, and there were too many marketing buzz phrases in it -- "building a culture," "leveraging business development," "exploiting our unique combination of strengths," "maximizing the potential," and so on. The plan to expand more into specialty care products and to concentrate mainstream research on core areas sound concrete, but overall I thought I was reading "More of the same, only better."

The winner
My pick, obviously, is GlaxoSmithKline -- and I already have it in the Fool's Beginners' Portfolio. Back in June, I reckoned Glaxo had been preparing for the blockbuster drugs pipeline crunch better, and had been more successful in biotechnology expansion and acquisition.

Earnings forecasts, albeit short term, are better -- there's a 9% growth in earnings per share forecast for 2014, with AstraZeneca's still expected to be falling. And though the shares are on a higher P/E multiple, I think that rightly reflects a greater level of confidence in Glaxo's future.

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Stocks Mentioned

GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$43.56 (0.65%) $0.28
AstraZeneca PLC Stock Quote
AstraZeneca PLC
$10,488.00 (2.32%) $238.00
AstraZeneca PLC Stock Quote
AstraZeneca PLC
$64.54 (1.93%) $1.22
GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$1,764.20 (1.88%) $32.60
Shire plc Stock Quote
Shire plc

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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