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5 Stocks to Buy as the Drug Industry Bets Big on Innovation
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Innovation is expected to be the key to growth of the drug/biotech sector in 2023. The drug/biotech sector has been witnessing developments in pipeline areas like rare diseases, gene therapy and editing, and mRNA-based drugs and vaccines. In 2023, the sector is expected to make advances in areas like Alzheimer’s, cell and gene therapy and mRNA research.
Overall, successful innovation resulting in new drug/product approvals, important advances in clinical studies and strategic collaborations with strong partners have kept small and medium-sized drug companies like Dyne Therapeutics (DYN - Free Report) , Silence Therapeutics (SLN - Free Report) , Alaunos Therapeutics (TCRT - Free Report) , Assertio Holdings (ASRT - Free Report) and Acer Therapeutics (ACER - Free Report) afloat.
Industry Description
The Zacks Medical-Drugs industry comprises small and some medium-sized drug companies, which make medicines for both human and veterinary use. We have a separate industry outlook discussion on some of the biggest drugmakers in the world. Most of the small drugmakers have a limited portfolio of marketed drugs or no commercial-stage drugs at all. Some of these 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 source of revenues. These companies need ample free cash flow to fund their R&D activity.
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 new priorities for drug companies.
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 price in the future.
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 250 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 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 220-stock group within the broader Medical sector. The industry has underperformed the S&P 500 and the Zacks Medical sector in the past year.
Stocks in this industry have collectively declined 15.7% in the past one year, while the Zacks S&P 500 composite has declined 14%. The Zacks Medical sector has declined 10.4% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing twelve 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 1.86 compared with the S&P 500’s 3.53 and the Zacks Medical sector's 2.22.
Over the last five years, the industry has traded as high as 4.76X, as low as 1.63X, and at the median of 2.56X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
5 Drug Stocks to Keep an Eye On
Acer Therapeutics: Woodlands, Texas-based Acer Therapeutics develops and markets therapies targeting rare diseases and disorders. In December 2022, Acer Therapeutics secured its first FDA approval for Olpruva as an oral suspension for patients with urea cycle disorders (UCD). Olpruva is an innovative formulation of sodium phenylbutyrate packaged for the first time in single-dose envelopes to address some challenges that patients with UCD face with existing therapies. The approval of Olpruva has triggered a $42.5 million term loan to Acer under an earlier loan agreement with an asset management company. The loan proceeds, if received, will provide the company with sufficient resources to fund current operations into the second half of 2023. In addition, it is developing ACER-801 for moderate-to-severe Vasomotor Symptoms in post-menopausal women, in a phase IIa study, top-line data from which is expected in the first quarter of 2023.
The stock of Acer Therapeutics has risen 19.5% in the past one year. The loss estimate for 2023 has narrowed from $1.07 per share to 61 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: ACER
Alaunos Therapeutics: This Houston, Texas-based clinical-stage cancer biotech is focused on the development of T cell receptor (TCR) therapies. It has a Zacks Rank #1.
Loss estimates for 2023 have improved from 21 cents per share to 20 cents per share over the past 60 days. The stock has declined 5.1% in the past one year.
In 2022, Alaunos Therapeutics actively enrolled patients in its TCR-T library phase I/II study targeting KRAS, TP53 and EGFR hotspot mutations across six solid tumor indications. In September, it achieved the first-in-human objective clinical response in a patient with a solid tumor using a non-viral TCR-T cell therapy. Enrollment in the study is expected to accelerate in 2023 with an interim update expected by mid-2023 as it works toward advancing the program into phase II. The company now plans to add two new TCRs to its library that will double the potential addressable market of its TCR-T program.
Price and Consensus: TCRT
Assertio Holdings: This Lake Forest, IL-based specialty pharma company, which markets neurology, inflammation and pain medications, has a Zacks Rank #2 (Buy).
Earnings estimates for 2023 have improved from 44 cents per share to 50 cents per share over the past 60 days. The stock has risen 77.6% in the past one year.
Assertio Holdings recently acquired an exclusive license for Sympazan oral film from Aquestive Therapeutics. The addition of Sympazan, approved to treat adjunctive treatment of seizures associated with Lennox???Gastaut Syndrome, diversifies its portfolio and is expected to contribute to Assertio Holdings’ goal to acquire $40 million in gross profit by 2024. The company raised its full-year 2022 net product sales guidance in December as product sales in the year consistently exceeded management’s expectations.
Price and Consensus: ASRT
Dyne Therapeutics: This Waltham, MA-based clinical-stage muscle disease company has a broad portfolio of programs for serious muscle diseases, including candidates for myotonic dystrophy type 1, Duchenne muscular dystrophy and facioscapulohumeral muscular dystrophy. Loss estimates for 2023 for this Zacks Rank #2 stock have narrowed from $3.54 per share to $3.49 per share over the past 60 days. The stock has risen 66.1% in the past one year
In the third quarter of 2022 Dyne Therapeutics initiated phase I/II clinical studies for two lead product candidates, DYNE-101 and DYNE-251 for DM1 and DMD, respectively. Clinical data readouts from both studies are anticipated in the second half of 2023. The FDA also granted Fast Track designation for DYNE-251.
Price and Consensus: DYN
Silence Therapeutics: London-based Silence Therapeutics makes novel ribonucleic acid therapeutics in hematology, cardiovascular, and other rare and metabolic indications. Lead candidate, SLN360 posted positive data in a phase I study in healthy adults with high lipoprotein(a), a key genetic risk factor for cardiovascular disease. A phase II study in patients with atherosclerotic cardiovascular disease and high Lp(a) is expected to start soon. Its second candidate, SLN124, is targeting hematological disorders and has produced proof of concept data in healthy volunteers and safety data in thalassemia patients. A phase I/II study on SLN124 for polycythemia vera is also expected to start soon
The stock of Silence Therapeutics has declined 34.8% in the past year. The consensus estimate for 2023 loss has narrowed from $1.67 per share to $1.55 per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: SLN
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5 Stocks to Buy as the Drug Industry Bets Big on Innovation
Innovation is expected to be the key to growth of the drug/biotech sector in 2023. The drug/biotech sector has been witnessing developments in pipeline areas like rare diseases, gene therapy and editing, and mRNA-based drugs and vaccines. In 2023, the sector is expected to make advances in areas like Alzheimer’s, cell and gene therapy and mRNA research.
Overall, successful innovation resulting in new drug/product approvals, important advances in clinical studies and strategic collaborations with strong partners have kept small and medium-sized drug companies like Dyne Therapeutics (DYN - Free Report) , Silence Therapeutics (SLN - Free Report) , Alaunos Therapeutics (TCRT - Free Report) , Assertio Holdings (ASRT - Free Report) and Acer Therapeutics (ACER - Free Report) afloat.
Industry Description
The Zacks Medical-Drugs industry comprises small and some medium-sized drug companies, which make medicines for both human and veterinary use. We have a separate industry outlook discussion on some of the biggest drugmakers in the world. Most of the small drugmakers have a limited portfolio of marketed drugs or no commercial-stage drugs at all. Some of these 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 source of revenues. These companies need ample free cash flow to fund their R&D activity.
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 new priorities for drug companies.
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 price in the future.
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 250 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 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 220-stock group within the broader Medical sector. The industry has underperformed the S&P 500 and the Zacks Medical sector in the past year.
Stocks in this industry have collectively declined 15.7% in the past one year, while the Zacks S&P 500 composite has declined 14%. The Zacks Medical sector has declined 10.4% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing twelve 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 1.86 compared with the S&P 500’s 3.53 and the Zacks Medical sector's 2.22.
Over the last five years, the industry has traded as high as 4.76X, as low as 1.63X, and at the median of 2.56X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
5 Drug Stocks to Keep an Eye On
Acer Therapeutics: Woodlands, Texas-based Acer Therapeutics develops and markets therapies targeting rare diseases and disorders. In December 2022, Acer Therapeutics secured its first FDA approval for Olpruva as an oral suspension for patients with urea cycle disorders (UCD). Olpruva is an innovative formulation of sodium phenylbutyrate packaged for the first time in single-dose envelopes to address some challenges that patients with UCD face with existing therapies. The approval of Olpruva has triggered a $42.5 million term loan to Acer under an earlier loan agreement with an asset management company. The loan proceeds, if received, will provide the company with sufficient resources to fund current operations into the second half of 2023. In addition, it is developing ACER-801 for moderate-to-severe Vasomotor Symptoms in post-menopausal women, in a phase IIa study, top-line data from which is expected in the first quarter of 2023.
The stock of Acer Therapeutics has risen 19.5% in the past one year. The loss estimate for 2023 has narrowed from $1.07 per share to 61 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: ACER
Alaunos Therapeutics: This Houston, Texas-based clinical-stage cancer biotech is focused on the development of T cell receptor (TCR) therapies. It has a Zacks Rank #1.
Loss estimates for 2023 have improved from 21 cents per share to 20 cents per share over the past 60 days. The stock has declined 5.1% in the past one year.
In 2022, Alaunos Therapeutics actively enrolled patients in its TCR-T library phase I/II study targeting KRAS, TP53 and EGFR hotspot mutations across six solid tumor indications. In September, it achieved the first-in-human objective clinical response in a patient with a solid tumor using a non-viral TCR-T cell therapy. Enrollment in the study is expected to accelerate in 2023 with an interim update expected by mid-2023 as it works toward advancing the program into phase II. The company now plans to add two new TCRs to its library that will double the potential addressable market of its TCR-T program.
Price and Consensus: TCRT
Assertio Holdings: This Lake Forest, IL-based specialty pharma company, which markets neurology, inflammation and pain medications, has a Zacks Rank #2 (Buy).
Earnings estimates for 2023 have improved from 44 cents per share to 50 cents per share over the past 60 days. The stock has risen 77.6% in the past one year.
Assertio Holdings recently acquired an exclusive license for Sympazan oral film from Aquestive Therapeutics. The addition of Sympazan, approved to treat adjunctive treatment of seizures associated with Lennox???Gastaut Syndrome, diversifies its portfolio and is expected to contribute to Assertio Holdings’ goal to acquire $40 million in gross profit by 2024. The company raised its full-year 2022 net product sales guidance in December as product sales in the year consistently exceeded management’s expectations.
Price and Consensus: ASRT
Dyne Therapeutics: This Waltham, MA-based clinical-stage muscle disease company has a broad portfolio of programs for serious muscle diseases, including candidates for myotonic dystrophy type 1, Duchenne muscular dystrophy and facioscapulohumeral muscular dystrophy. Loss estimates for 2023 for this Zacks Rank #2 stock have narrowed from $3.54 per share to $3.49 per share over the past 60 days. The stock has risen 66.1% in the past one year
In the third quarter of 2022 Dyne Therapeutics initiated phase I/II clinical studies for two lead product candidates, DYNE-101 and DYNE-251 for DM1 and DMD, respectively. Clinical data readouts from both studies are anticipated in the second half of 2023. The FDA also granted Fast Track designation for DYNE-251.
Price and Consensus: DYN
Silence Therapeutics: London-based Silence Therapeutics makes novel ribonucleic acid therapeutics in hematology, cardiovascular, and other rare and metabolic indications. Lead candidate, SLN360 posted positive data in a phase I study in healthy adults with high lipoprotein(a), a key genetic risk factor for cardiovascular disease. A phase II study in patients with atherosclerotic cardiovascular disease and high Lp(a) is expected to start soon. Its second candidate, SLN124, is targeting hematological disorders and has produced proof of concept data in healthy volunteers and safety data in thalassemia patients. A phase I/II study on SLN124 for polycythemia vera is also expected to start soon
The stock of Silence Therapeutics has declined 34.8% in the past year. The consensus estimate for 2023 loss has narrowed from $1.67 per share to $1.55 per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: SLN