The Zacks Medical-Drugs industry is showing promising trends in 2024 amid strong M&A activity and positive pipeline news. Concerns around the economy and inflation, regular pipeline setbacks, uncertainty about the impact of Medicare drug price negotiations and the Federal Trade Commission’s (FTC) scrutiny of M&A deals are some of the headwinds faced by drug/biotech companies.However,innovation is at its peak for the industry, with key spaces like diabetes/obesity, inflammation and neuroscience attracting attention. Investors are particularly interested in developments related to GLP-1 receptor agonists, radiopharmaceuticals and antibody-drug conjugates (ADCs).
The fundamentals of the industry remain strong as the need for medicines never goes away. These positive factors should keep driving stocks like Corcept Therapeutics CORT, Amneal Pharmaceuticals AMRX, Bioventus BVS, Foghorn Therapeutics FHTX and Akebia Therapeutics AKBA.

Industry Description

The Zacks Medical-Drugs industry comprises small and some medium-sized drug companies that make medicines for both human and veterinary use. We have a separate industry outlook discussion on big drugmakers. Small drugmakers have a limited portfolio of marketed drugs or no commercial-stage drugs at all. Some drugmakers are dependent on just one marketed drug or pipeline candidate. For such companies, upfront or milestone payments from collaboration partners — in most cases, their larger counterparts — are the main sources of revenues. These companies need ample free cash flow to fund their R&D activities.

Factors Shaping the Future of the Medical-Drugs Industry

Pipeline Success:The success or failure of key pipeline candidates in clinical studies can significantly drive the stock price of industry players. Successful innovation and product line extensions in important therapeutic areas and strong clinical study results may act as important catalysts for the stocks.

Strong Collaboration Partners:These companies regularly seek external partners and collaborators for complementary strengths. A partnership deal with a popular drugmaker is a good sign about the potential of small pharma companies, especially when an equity investment is included in the deal. M&A deals are in full swing in the sector, signaling growth. 

Investment in Technology for Innovation:For these smaller companies, succeeding in a shifting global market and evolving healthcare landscape requires adopting innovative business models, investing in new technologies and increasing investments in personalized medicines. Over the past few years, scientific and technological advancements have made it possible to develop personalized therapies. Other than that, adoption and information exchange through the meaningful use of health IT, development of therapies that improve overall patient outcomes and investment in developing and emerging markets are some of the key priorities for drug companies. Artificial intelligence and machine learning techniques are being used for the rapid advancement of drug discovery and target identification processes.

Pipeline Setbacks:The smaller companies have their share of risk in the form of unstable cash flows. Also, the failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be huge setbacks for these smaller companies and significantly hurt their share prices.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.

The Zacks Medical-Drugs industry currently carries a Zacks Industry Rank #63, which places it in the top 25% of 251 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present you with a few top-ranked stocks to capitalize on the thriving prospects of the small and medium-sized drugmakers’ space, let’s take a look at the industry’s recent stock-market performance and the valuation picture.

Industry Lags S&P 500 and Sector

The Zacks Medical-Drugs industry is a huge 178-stock group within the broader Medical sector. The industry has underperformed the S&P 500 as well as the Zacks Medical sector so far this year.

Stocks in this industry have collectively declined 4.0% year to date against the Zacks S&P 500 composite’s rise of 14.3% and the Zacks Medical sector’s increase of 7.5%.

YTD Price Performance

Industry's Current Valuation

Based on the trailing 12 months price-to-sales ratio (P/S TTM), which is a commonly used multiple for valuing these small drugmakers, the industry is currently trading at 2.01, compared with the S&P 500’s 5.4 and the Zacks Medical sector's 3.6.

Over the last five years, the industry has traded as high as 4.96X, as low as 1.74X, and at the median of 2.44X, as the chart below shows.

Trailing 12-Month Price-to-Sales (P/S) Ratio

5 Drug Stocks to Bet On

Bioventus: Durham, NC-based Bioventus makes minimally invasive treatments that engage and enhance the body’s natural healing process. Its three segments are Pain Treatments, Restorative Therapies and Surgical Solutions. It is seeing double-digit revenue growth in both Pain Treatments and Surgical Solutions, which has improved its profitability. The company expects the positive momentum to continue in the second half of the year. The company raised its financial guidance, for the second time this year, at the second quarter earnings release based on accelerated momentum in its business and increased expectations.

Bioventus’ stock is up 57.1% this year so far. The consensus estimate for 2024 earnings has risen from 27 cents per share to 40 cents per share over the past 30 days. The company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. .

Price and Consensus: BVS

Amneal Pharmaceuticals:Bridgewater, NJ-based Amneal Pharmaceuticals markets generics as well as specialty pharmaceuticals products. The company recorded strong revenues and profit growth in the first half of 2024 and raised its financial guidance for 2024 on the second-quarter conference call driven by broad-based growth across its business. While oncology biosimilars and new product launches are driving sales growth in the Generics segment, promoted products in Neurology and Endocrinology are pushing the Specialty segment’s growth. Last week, the FDA approved its Crexont (IPX203), a novel, oral formulation of carbidopa/levodopa, for Parkinson’s disease.

Amneal Pharmaceuticals’ stock has risen 30.3% year to date. The consensus estimate for 2024 earnings has risen from 58 cents to 59 cents per share over the past 30 days. The company has a Zacks Rank #2 (Buy).

Price and Consensus: AMRX

Akebia Therapeutics: In March, the FDA approved Cambridge, MA-based Akebia Therapeutics’ Vafseo (vadadustat) tablets for the treatment of anemia due to chronic kidney disease (CKD). The approval of Vafseo tablets gave Akebia its second FDA-approved product after Auryxia (ferric citrate), which is indicated for the control of serum phosphorus levels in adult patients with CKD on dialysis.  The oral method of the use of Vafseo tablets will make it an easier-to-use medicine compared with currently injectable erythropoiesis-stimulating agents that are mostly administered at dialysis centers to treat anemia in CKD patients. Vafseo launch activities are underway with availability expected in January 2025. Auryxia is also generating decent sales.

In July, Akebia said it had terminated its royalty-based existing license agreement with CSL Vifor, which resulted in Akebia regaining rights to sell Vafseo to Fresenius Kidney Care dialysis centers and specific other third-party dialysis organizations in the United States.

The stock of Akebia Therapeutics has risen 16.1% so far this year. The consensus estimate for 2024 loss has narrowed from 28 cents per share to 19 cents per share over the past 30 days. The company has a Zacks Rank #2.

Price and Consensus: AKBA

Foghorn Therapeutics: Cambridge, MA-based Foghorn Therapeutics’ clinical-stage pipeline currently comprises only its lead candidate, FHD-286, a selective, allosteric ATPase inhibitor, which is being developed in a phase I combination study to treat relapsed and/or refractory acute myeloid leukemia. Top-line data from the study is expected in the fourth quarter of 2024. In preclinical studies, FHD-286 has shown anti-tumor activity across a broad range of malignancies, including both hematologic and solid tumors.

In February, partner Eli Lilly selected its pre-clinical candidate, FHD-909, a first-in-class oral BRM selective inhibitor, for clinical development. In preclinical studies, FHD-909 has shown significant anti-tumor activity across multiple BRG1-mutant lung tumors. A phase I study in SMARCA4 mutated non-small cell lung cancer is expected to begin in the second half of 2024.

The stock of Foghorn Therapeutics has declined 3.9% so far this year. The consensus estimate for 2024 loss has narrowed from $2.20 per share to $1.80 per share over the past 30 days. The company has a Zacks Rank #2.

Price and Consensus: FHTX

Corcept Therapeutics: Redwood City, CA-based Corcept’s sole marketed drug, Korlym, which is approved for treating Cushing's syndrome, has been performing well. Corcept increased its annual revenue guidance for Korlym on the second-quarter conference call owing to strong demand. A new drug application for its lead pipeline candidate, relacorilant, for Cushing’s syndrome is expected to be submitted in the fourth quarter of 2024.

The stock of Corcept Therapeutics has risen 7.6% so far this year. The consensus estimate for 2024 earnings has risen from 95 cents to $1.07 per share over the past 30 days. The company has a Zacks Rank #2.

Price and Consensus: CORT

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