The biotech industry has declined since Donald Trump’s election victory. This was mainly because Trump nominated Robert F. Kennedy Jr., a vaccine skeptic, to head the Health and Human Services, the agency that oversees the FDA. Trump is expected to make significant changes at all major healthcare agencies. Regular pipeline setbacks, the slow ramp-up of newer drugs, patent cliffs, regulatory risks and macroeconomic pressure are some other headwinds for the sector.

However, amid all the headwinds, the Zacks Medical-Drugs industry is showing promising trends due to positive pipeline news and regulatory successes. In Trump’s second innings, the biotech industry hopes to witness more innovation and mergers and acquisitions (M&A) activity.

Innovation is at its peak for the industry, with key spaces like rare diseases, next-generation oncology treatments, obesity, immunology and neuroscience attracting investor attention. R&D innovation is likely to remain a major focus area in 2025 as well. These factors should continue to drive stocks like Corcept Therapeutics CORT, Amneal Pharmaceuticals AMRX, Dyne Therapeutics DYN, Nektar Therapeutics NKTR and Cardiol Therapeutics CRDL.

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 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 #88, which places it in the top 35% of 260-plus 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 161-stock group within the broader Medical sector. The industry has underperformed the S&P 500 as well as the Zacks Medical sector in the past year.

Stocks in this industry have collectively declined 7.1% in the past year compared with the Zacks Medical sector’s decrease of 4.4%. In contrast, the Zacks S&P 500 composite has risen 24.5% in the said time frame.

Trailing 12-Month 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 1.94, compared with the S&P 500’s 5.79 and the Zacks Medical sector's 3.35.

Over the last five years, the industry has traded as high as 3.29, as low as 1.71 and at the median of 2.13, as the chart below shows. 

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

5 Drug Stocks to Bet On

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 three quarters of 2024, 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, including the recent launches of Crexont and Ongentys for Parkinson’s disease.

Amneal Pharmaceuticals’ stock has risen 55.7% in the past year. The consensus estimate for 2025 earnings has been stable at 70 cents per share over the past 60 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: AMRX

Corcept Therapeutics: Redwood City, CA-based Corcept’s sole marketed drug, Korlym, which is approved for treating Cushing's syndrome, has been performing well backed by strong demand trends. Corcept’s lead pipeline candidates are relacorilant (Cushing’s syndrome), dazucorilant (amyotrophic lateral sclerosis) and miricorilant (metabolic dysfunction-associated fatty liver disease). A new drug application for relacorilant for Cushing’s syndrome was submitted to the FDA in December 2024. Relacorilant is also being studied for mid to late-stage studies for ovarian cancer and prostate cancer.

The stock of Corcept Therapeutics has risen 223.2% in the past year. The consensus estimate for 2025 earnings has been stable at $1.84 per share over the past 60 days. The company has a Zacks Rank #2 (Buy).

Price and Consensus: CORT

Nektar Therapeutics: San Francisco, CA-based Nektar Therapeutics is making good progress in the development of its lead candidate, rezpegaldesleukin or rezpeg. Top-line data from two ongoing phase IIb studies of rezpeg in atopic dermatitis and alopecia areata are expected to be announced in the second quarter and second half of 2025, respectively. It recently completed target enrollment in the 400-patient atopic dermatitis study for rezpeg.

Nektar believes that rezpeg is a potential first-in-class resolution therapy that may address the underlying immune system imbalance in autoimmune disorders and inflammatory diseases. It is also rapidly advancing its earlier stage TNFR2 antibody and bispecific programs, NKTR-0165 and NKTR-0166, with at least one of these slated to enter clinical development in 2025.

Nektar’s stock has surged 244.8% in the past year. Loss estimates for 2025 have improved from 83 cents to 81 cents per share over the past 60 days. The company has a Zacks Rank #2.

Price and Consensus: NKTR

Cardiol Therapeutics: This Canada-based company is making rapid progress with the development of CardiolRx, its lead drug candidate for the treatment of inflammation and fibrosis in heart disease. CardiolRx is being evaluated in two diseases affecting the heart — recurrent pericarditis and acute myocarditis.

Top-line data from the phase II MAvERIC-Pilot study evaluating CardiolRx in recurrent pericarditis showed that CardiolRx resulted in marked and rapid reductions in pericarditis pain and inflammation in patients with a high degree of disease burden. Based on the positive data, the company expects to advance CardiolRx into pivotal phase III development for a broad proportion of the pericarditis population.

Patient enrollment in the phase II ARCHER study in acute myocarditis was completed in September 2024. Top-line data from the study is expected to be announced in 2025.

The stock of Cardiol Therapeutics has risen 19.3% in the past year. The consensus estimate for 2025 loss has narrowed from 31 cents per share to 30 cents per share over the past 60 days. The company has a Zacks Rank #2.

Price and Consensus: CRDL

Dyne Therapeutics: Waltham, MA-based biotech, Dyne Therapeutics is conducting phase I/II clinical studies for two lead product candidates, DYNE-101 and DYNE-251 for the treatment of serious muscle diseases, myotonic dystrophy type 1 (DM1) and Duchenne muscular dystrophy (DMD), respectively.  The company is pursuing expedited approval pathways for both DYNE-101 and DYNE-251.

Earlier this month, the company announced robust additional clinical data from the ACHIEVE phase I/II study on DYNE-101, which demonstrated substantial functional benefit across a range of clinical measures of the DM1 disease. The company plans to initiate a registrational expansion cohort of the ACHIEVE study to support potential submission for U.S. accelerated approval for DYNE-101 1 in DM1 based on biomarker and functional data in the first half of 2026.

For DYNE-251 too, the company plans to complete enrollment in the registrational expansion cohort of the phase I/II DELIVER study in 2025 with a goal to submit applications for accelerated approvals in 2026

The stock of DYN has declined 35.9% in the past year. The consensus estimate for 2025 loss has narrowed from $3.64 per share to $3.62 per share over the past 60 days. The company has a Zacks Rank #2.

 Price and Consensus: DYN

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