But now their stories are drifting apart. To deal with the challenges of the sector both are heading away from their big pharma roots, although Astra and GSK have employed very different strategies to do so. Astra is starting to look more like a biotechnology company, having spent big on scientific research and development, while GSK has focused on its consumer healthcare division. So at the end of a tough year for the industry, can either of the UK's giants still be classed as 'big pharma'?
AstraZeneca: New age biopharma
Chief executive Pascal Soriot always said 2016 was going to be tough. Earnings took a knock after top-selling drug Crestor lost its patent protection in May, while the integration of three acquisitions made in 2015 added to costs. In what feels like a relatively desperate attempt to keep cash flows aloft, Astra has sold or partnered 13 'non-core' drugs and is now in the process of rationalising jobs in both the US and UK.
The future for Astra is in its highly innovative pipeline of new drugs. Over the past few years the group has invested heavily in research and development and now has a huge number of new drugs in the late stages of clinical development, many of which are due to announce pivotal trial results in 2017. But the group's reliance on the positive outcome of these drugs trials makes it look much more like a risky biotech stock than the steady income player it used to be. In October, when the company was forced to halt one of its drug trials amid fears of unwanted side-effects, its share price plummeted, showing just how much investors are pinning their hopes on successful drug launches.
But we think Astra has used recent improvements in modern medicine to its advantage and therefore is well placed to grow into a successful biopharma company in the next few years. With such a well-stocked pipeline of new drugs, we like the group's chances of launching at least one blockbuster drug. But the diminished share price currently prices in the prospect of every single clinical trial failing, and for that reason we rate Astra a good value buy.
GlaxoSmithKline: Consumer focus
Critics of GSK had a field day in 2015. Management's decision to bulk up the consumer healthcare division of the company - rather than invest in new drug development - left many investors worrying that margins and cash flow could come under fire. Financial results for the year to December 2015 seemed to confirm those worries and the share price was hammered. But concerns were a bit premature, as for the majority of 2016 GSK has been one of the best-performing pharma stocks globally.
The group's solid consumer healthcare division has helped keep earnings afloat as some major drugs have come off-patent, and cash flows returned to normal after the big drop-off last year. GSK has turned into a well-balanced healthcare company with a few top-selling respiratory drugs, an impressive vaccines portfolio and big consumer brands.
But as for innovation, there's not a lot to write home about. The future of healthcare is in personalised treatment: specific drugs for specific strains of a disease. But GSK's small new drugs pipeline is more focused on the historical one-size-fits-all approach. Despite its protestations to the contrary, GSK has placed considerable focus on consumer healthcare and this could very well increase once the new chief executive - formerly the boss of the consumer healthcare division - takes the reins in the new year. We don't necessarily think this is a bad thing, but it does mean GSK seems to lack the blockbuster potential of Astra - and that means growth will always be comparatively pedestrian. As such, we rate the shares as a hold rather than a buy.
