A decade ago, few investors would touch pharmaceutical stocks. The big drug companies were shunned by investors over fears of a patent cliff. The blockbuster drugs only guaranteed revenue streams for a set amount of time, before the companies were obliged to give up the recipe to the general market.
But long-term investor Neil Woodford saw that pharmaceutical companies could continue to be a healthy source of income - and since then investors in his former fund Invesco Perpetual Income have been rewarded with both dividends and growth.
It has not been a smooth ride for investors in 
AstraZeneca (AZN). A steady rise in the share price in 2004 from £18.89 was followed by a crash four years later from £35 to £17.90. But since then it has climbed to £39 today, making it overvalued according to Morningstar equity analysts.
Morningstar analyst Damien Conover credits the recovery to AstraZeneca's leading presence in the pharmaceutical and biotech industry on patent-protected drugs and a developing pipeline that secure a large competitive advantage.
However, the massive patent losses on gastrointestinal drug Nexium and cholesterol reducer Crestor in 2014 and 2016, respectively, will weigh on the company's growth prospects.
"During the next five years, all three of the company's current growth drivers lose patent protection, magnifying the importance of pipeline products," he said.
"Also the risk of coronary drug Brilinta failing in the market is magnified as the company lacks many recently launched potential blockbuster drugs. Further, Astra holds a relatively high exposure to generic competition over the next several years."
But it is not all bad news. The company is expanding its biologic presence in pipeline products. These biologics tend to carry higher pricing power, meaning greater and more diverse streams of revenue and may hold off generic competition longer than typical drugs.
Astra has also experience a management shake-up, and this new team is focusing the pipeline toward unmet medical need, which should increase the odds of success and the pricing power of the pipeline.
Conover added that growth in emerging markets will also help to counter the patent cliff.
"While AstraZeneca doesn't have the largest presence in these markets, the company is growing in these territories, which should help offset patent losses in developed markets," he said.
