In common with many other pharmaceutical giants AstraZeneca(LSE: AZN) has suffered at the hands of generic competition in recent years as patents expire on some of their more important drugs. As a result, both sales revenue and underlying earnings have been in steep decline. But the FTSE 100 drugs giant has continued to reward its shareholders handsomely, managing to maintain its annual dividend payouts at 280¢ per share. But can we rely on this level of income forever?
Astra's best-selling anti-cholesterol pill Crestor is now facing tough generic competition, with sales plunging 57% in the US during 2016, and contributing to an overall sales decline in the US of 22% to $7,365m. Europe performed much better with a decline of just 3% to $5,064m. Another of Astra's blockbuster drugs Nexium, used for the treatment of heartburn, has also suffered with a sales decline of 39% in the US, reflecting lower demand and inventory de-stocking following the loss of exclusivity in 2015.
Although disappointing, Astra's performance during 2016 was broadly in line with expectations, with 2017 possibly a defining year for the multinational pharmaceuticals giant. Crestor represents the last anticipated blockbuster patent expiry ahead of significant late-stage pipeline news, which could lead to an important turning point for the drugmaker.
The company has a promising pipeline of immuno-oncology and targeted treatments, and this year has the opportunity to launch several life-changing medicines for cancer, respiratory and metabolic diseases. This could be an exciting time for Astra and its shareholders as it rapidly approaches the turning point for its anticipated return to long-term growth.
Shareholders should perhaps be grateful that Astra has managed to maintain its dividend while facing tough challenges over the past few years. They could well reap the rewards for their patience in the long run with the company poised to return to growth in the not-too-distant future. The shares trades on an undemanding P/E ratio of 15 for the current year, and support a healthy dividend yield of 4.8%.
Buy and hold
For income seekers who require a little more certainty with regards to the outlook, perhaps a better pick would be Astra's closest peer GlaxoSmithKline(LSE: GSK). Its 2016 performance certainly made better reading than that of its rival, with group sales rising by 17% to £27.9bn, equivalent to 6% on a constant currency basis. Perhaps most encouraging was the news that new product sales had more than doubled to £4.5bn, driven by strong performances from HIV drugs, respiratory treatments and meningitis vaccines.
The City is expecting the Brentford-based drugs giant to hit £30bn in revenues by the end of the year, while boosting underlying earnings to £5.5bn. Glaxo has long been a favourite with buy-and-hold investors, and continues to reward shareholders with generous payouts, its shares currently offering a solid yield of 4.9%.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.