5 Small Drug Stocks to Buy From a Recovering Industry

Core Viewpoint - The Zacks Medical-Drugs industry has shown signs of recovery in early 2024 after a downturn in 2023, driven by M&A activity and innovation in key therapeutic areas, despite facing macroeconomic pressures and pipeline setbacks [1] Industry Overview - The Zacks Medical-Drugs industry consists of small to medium-sized drug companies producing medicines for human and veterinary use, often relying on collaboration payments for revenue [2] Factors Influencing the Industry - Pipeline success is crucial, as the outcomes of clinical studies can significantly impact stock prices, with successful innovations acting as catalysts [3] - Strong collaboration with larger drugmakers is essential for small pharma companies, indicating growth potential [3] - Investment in technology and personalized medicine is necessary for adapting to the evolving healthcare landscape [4] Challenges Facing the Industry - Smaller companies face risks from unstable cash flows and potential failures in key pipeline candidates, which can adversely affect share prices [5] Industry Performance Metrics - The Zacks Medical-Drugs industry currently holds a Zacks Industry Rank of 90, placing it in the top 36% of 250 Zacks industries, indicating positive prospects [6] - Over the past year, the industry has underperformed, with a collective decline of 5.4% compared to the S&P 500's increase of 27.9% [7] Valuation Insights - The industry is trading at a trailing 12-month price-to-sales ratio of 2.05, lower than the S&P 500's 4.07 and the Zacks Medical sector's 3.50 [8] Notable Companies and Their Performance - Bioventus: Experiencing double-digit revenue growth, with stock up 20.1% year-to-date and a consensus estimate for 2024 earnings rising from 16 cents to 27 cents per share [9][10] - Aquestive Therapeutics: Key pipeline candidate Anaphylm shows promise, with stock up 51.5% year-to-date and a consensus estimate for 2024 loss increasing from 38 cents to 42 cents per share [11][12] - Cardiol Therapeutics: Developing CardiolRx for heart disease, with stock up 163.3% year-to-date and a narrowed consensus estimate for 2024 loss from 32 cents to 26 cents per share [14][15] - Heron Therapeutics: Key drug Zynrelef has expanded its label, with stock up 103.5% year-to-date and a narrowed consensus estimate for 2024 loss from 22 cents to 10 cents per share [16][17] - Acrivon Therapeutics: Progressing in precision oncology with stock up 65% year-to-date and a narrowed consensus estimate for 2024 loss from $2.98 to$2.47 per share [19][20]