5 Small Drug Stocks to Buy From a Rebounding Industry

Industry Overview - The drug/biotech sector is expected to recover in 2024 after a lackluster 2023, with strong M&A activity anticipated as a key driver of optimism [1] - Innovation in areas such as weight loss/obesity and Alzheimer's disease drugs is likely to propel growth in the industry [1] Economic Factors - High interest rates, global supply chain constraints, pressures in U.S. regional banking, and rising geopolitical concerns have heightened economic uncertainties [2] - Despite these challenges, the fundamentals of the sector remain strong, and investors are expected to return to this defensive space [2] Industry Description - The Zacks Medical-Drugs industry consists of small to medium-sized drug companies that produce medicines for human and veterinary use [3] - Many small drugmakers rely on a limited portfolio of marketed drugs or a single pipeline candidate, with revenue often coming from collaboration payments [3] Future Industry Drivers - The success of key pipeline candidates in clinical studies can significantly influence stock prices, with successful innovations acting as catalysts [4] - Strong partnerships with larger drugmakers are crucial for small pharma companies, indicating potential growth through collaboration [4] Technological Investment - Smaller companies must adopt innovative business models and invest in new technologies to thrive in a changing healthcare landscape [5] - Advancements in personalized medicine and the use of AI and machine learning are becoming essential for drug discovery and development [5] Current Industry Performance - The Zacks Medical-Drugs industry has underperformed the S&P 500 and the broader Medical sector over the past year, with a collective rise of only 0.5% compared to the S&P 500's 28.3% increase [8] - The industry currently trades at a trailing 12-month price-to-sales ratio of 2.18, lower than the S&P 500's 4.22 and the Zacks Medical sector's 3.37 [9] Notable Companies - United Therapeutics: Focused on pulmonary arterial hypertension treatments, aiming for $4 billion in revenues by 2025, with a stock decline of 7.2% over the past year [10][11] - Esperion Therapeutics: Marketed drugs have shown improved prescription trends, with a stock decline of 57% in the past year [12] - Lyra Therapeutics: Developing therapies for chronic rhinosinusitis, with a stock increase of 142.5% in the past year [13][14] - Heron Therapeutics: Key drug Zynrelef has expanded its label, with a stock increase of 16.3% in the past year [15][16] - Aldeyra Therapeutics: Focused on RASP modulators, with a stock decline of 47.8% in the past year [17][19]