Since May, AstraZenecas(LSE: AZN) (NYSE: AZN.US) shareholders have been excitedly awaiting the return ofPfizerto make a new buyout offer for the UKs second largest pharmaceutical company. 
The prospect of another bid has kept Astras shares above the key 4,000p per share level for much of this year. Unfortunately, theres a very real chance that Pfizer wont come back and make another offer for Astra.
Potential for disappointment
The US government has introduced rules of the past few months that blocks so called tax inversions, whereby a company shifts its tax base outside of the US to lower its tax bill.
Pfizers takeover of Astra was motivated by Astras lower tax bill but with restrictions now in place, Pfizers options are limited. As a result, its likely that Pfizer wont make another bid for Astra any time soon. For this reason, Astras shares could fall by as much as 10%.
Indeed, takeover speculation has driven Astras valuation up to a level which appears to be unsustainable in the long-term. For example, Astra currently trades at a forward P/E of 16, compared to the pharmaceutical & biotech average sector P/E of 13.1. Whats more, Astras larger peer,GlaxoSmithKline(LSE: GSK) (NYSE: GSK.US) currently trades at a forward P/E of 14.6, despite the companys growth prospects.
Specifically, Glaxos earnings are expected to fall around 16% this year but City analysts are expecting earnings per share growth of 4% during 2015. Meanwhile, Astras earnings are expected to fall 14% this year, then a further 7% next year. Astras management does not expect the company to return to growth until 2017, although by 2023 management believes that the company will have doubled sales.
Unfortunately, these figures imply that if Pfizer does not come back for Astra, Astras shares will fall. If the companys valuationwere to fall to a level similar to the rest of the sector, the shares would only be worth 3,523p. With earnings expected to fall during 2015, the companys shares could fall further to 3,262p by 2015.
Room for growth
As Astras earnings fall, Glaxos earnings are set to begin rising again next year, which indicates to me that the company could be a better investment than its smaller peer.
Whats more, Glaxo has been investing for growth during the past year. As these investmentsstart to pay off next year, the company should see earnings shoot higher.
But its not just Glaxos future growth that has convinced me that the company has better prospects than Astra, Glaxo, as covered above is also cheaper. In addition to Glaxos low P/E multiple, the company supports a highly attractive dividend yield of 5.7%, compared to Astras 4.1%.
Two solid picks
All in all, if Pfizer does not return to make another bid for Astra, then Astras shares could fall than 10% from current levels. That being said, for long-term investors due to its defensive nature, Astra remains an attractive investment.
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Rupert Hargreaves owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
