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5 Small Drug Stocks Poised to Benefit From a Biotech Recovery
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The drug and biotechnology sector has staged a decent recovery in 2026, supported by encouraging clinical and regulatory developments, solid quarterly performances, improving outlooks and a strong wave of M&A activity. While large pharmaceutical companies continue to benefit from diversified portfolios and strong cash generation, smaller drugmakers and biotechs are offering potentially significant growth opportunities as innovative therapies advance through clinical development and toward commercialization.
The 2026 biotech recovery has, however, not lifted all boats. Investors have become increasingly selective, favoring companies with strong clinical catalysts, differentiated assets, adequate cash runways and potential commercial or M&A value. As a result, several small drugmakers remain significantly undervalued despite improving sector sentiment. Some small drugmakers with differentiated pipelines, promising clinical data, strong cash positions and clearly defined catalysts could offer substantial upside, albeit with considerably higher risk than established pharmaceutical companies.
The Zacks Medical-Drugs industry comprises small and some medium-sized drug companies that make medicines. We have a separate industry outlook discussion on big drugmakers. Small drugmakers have a limited portfolio of marketed drugs or no commercial 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 costs.
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.
Innovation is at its peak, with key spaces like rare diseases, next-generation oncology treatments, obesity/cardiometabolic, immunology/inflammatory diseases and neuroscience attracting investor attention.
Strong M&A Activity: 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. The trend is shifting more toward smaller and mid-size “bolt-on” strategic acquisitions rather than mega-mergers.
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: 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 a Short-Term Gloomy Picture
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 #166, which places it in the bottom 33% of the 247 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 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 Versus S&P 500 and Sector
The Zacks Medical-Drugs industry is a huge 138-stock group within the broader Medical sector. The industry has underperformed the S&P 500 and the Zacks Medical sector so far this year.
Stocks in this industry have collectively declined 2.9% so far this year against the Zacks Medical sector’s increase of 0.3%. The Zacks S&P 500 composite has risen 11.4% in the said time frame.
YTD Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-sales ratio (P/S F12M), which is a commonly used multiple for valuing these small drugmakers, the industry is currently trading at 2.09, compared with the S&P 500’s 4.71 and the Zacks Medical sector's 2.24.
Over the last five years, the industry has traded as high as 2.91, as low as 1.94 and at the median of 2.13, as the chart below shows.
Forward 12-Month Price-to-Sales (P/S) Ratio
5 Drug Stocks to Bet On
Indivior Pharmaceuticals: North Chesterfield, VA-based Indivior’s commercial portfolio is anchored by its flagship product, Sublocade, a first-in-class long-acting injectable treatment for moderate-to-severe opioid use disorder (OUD). Indivior remains a leader in opioid use disorder treatment, with Sublocade increasingly driving growth.
The product continues to gain traction through record patient starts, growing prescriber adoption, and a leading share of the U.S. long-acting injectable market. The company is also benefiting from a major restructuring program, supporting strong earnings and EBITDA growth. Additionally, the large and persistent opioid addiction market provides a favorable long-term growth opportunity.
However, Indivior's internal pipeline has suffered setbacks. In 2026, the company decided not to advance INDV-6001 into phase III development and also halted the internal development of INDV-2000 for opioid use disorder after disappointing phase II data.
In August 2026, Indivior agreed to combine with Supernus Pharmaceuticals in an all-stock merger of equals. The transaction is expected to be closed in the fourth quarter of 2026. Following completion, Supernus Pharmaceuticals will survive as a wholly owned subsidiary of Indivior, and Indivior will be renamed Supernus, Inc.
The stock of Indivior has declined 3.9% so far this year. The consensus estimate for 2026 earnings has risen from $3.57 per share to $3.66 per share over the past 60 days. The company has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: INDV
Larimar Therapeutics: CA-based Larimar Therapeutics is a clinical-stage company making medicines for rare diseases. Its lead pipeline candidate is nomlabofusp (CTI-1601), being developed as a potential treatment for Friedreich's ataxia (FA). Larimar Therapeutics has begun a rolling biologics license application (BLA) seeking accelerated approval of nomlabofusp for FA, with the first module submitted and completion expected later this year. Larimar plans to begin dosing in a global confirmatory phase III study in the third quarter. The company believes that nomlabofusp has the potential to be the first frataxin protein replacement therapy for patients with FA and targets a potential launch in mid-2027.
The stock of Larimar Therapeutics has risen 2.9% so far this year. The consensus estimate for 2026 loss has narrowed from $1.65 per share to $1.50 per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: LRMR
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. A phase III MAvERIC study is ongoing, evaluating CardiolRx in recurrent pericarditis.
The ARCHER program is studying CardiolRx in acute myocarditis. Top-line data from the completed phase II ARCHER study in acute myocarditis showed that CardiolRx led to a notable improvement in extracellular volume (ECV) over placebo. The data provide compelling clinical proof of concept for CardiolRx, supporting the advancement of the clinical development of this novel therapy for myocarditis and heart failure.
The stock of Cardiol Therapeutics has risen 109.2% so far this year. The consensus estimate for 2026 loss has narrowed from 25 cents per share to 19 cents per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: CRDL
Ironwood Pharmaceuticals: Cambridge, MA-based Ironwood Pharmaceuticals’ primary asset is Linzess, a leading treatment for irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (CIC). The drug continues to demonstrate healthy prescription demand growth and has treated millions of patients since launch.
Ironwood is also regularly getting approvals to expand Linzess' label, which is also supporting sales growth. Linzess is also well protected by patents and is not expected to face generic competition before March 2029.
Apraglutide, Ironwood's lead pipeline candidate for treating short bowel syndrome with intestinal failure (SBS-IF), represents a potentially game-changing growth opportunity for the company. In June, Ironwood initiated a confirmatory phase III study required to support regulatory approval of apraglutide in SBS-IF. Management believes that if successfully developed and approved, apraglutide has the potential to achieve blockbuster status.
The stock of Ironwood has risen 21.1% so far this year. The consensus estimate for 2026 earnings has risen from $1.04 per share to $1.10 per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: IRWD
Relmada Therapeutics: Coral Gables, FL-based Relmada Therapeutics’ lead pipeline candidate is NDV-01, being developed to treat patients with high-risk non-muscle invasive bladder cancer (NMIBC). RLMD’s NDV-01 is a sustained-release, intravesical formulation of gemcitabine and docetaxel.
Relmadaexpects to submit the NDV-01 investigational new drug or IND application by year-end 2026 and initiate the registrational phase III RESCUE study upon IND clearance. NDV-01 has the potential to become a best-in-class therapy for patients with NMIBC.
Relmada’s pipeline also includes sepranolone, a phase IIb-ready neurosteroid with the potential for treating Prader-Willi syndrome (PWS), Tourette Syndrome, essential tremor and other diseases related to excessive GABAergic activity. Relmada plans to initiate a phase IIb study in PWS once it gets clearance for its IND, which it expects to file by the end of this year.
The stock of Relmada Therapeutics has declined 6.4% so far this year. The consensus estimate for 2026 loss per share has narrowed from 82 cents to 60 cents over the past 60 days. The company has a Zacks Rank #2.
View the Zacks #1 Rank List
Image: Bigstock
5 Small Drug Stocks Poised to Benefit From a Biotech Recovery
The drug and biotechnology sector has staged a decent recovery in 2026, supported by encouraging clinical and regulatory developments, solid quarterly performances, improving outlooks and a strong wave of M&A activity. While large pharmaceutical companies continue to benefit from diversified portfolios and strong cash generation, smaller drugmakers and biotechs are offering potentially significant growth opportunities as innovative therapies advance through clinical development and toward commercialization.
The 2026 biotech recovery has, however, not lifted all boats. Investors have become increasingly selective, favoring companies with strong clinical catalysts, differentiated assets, adequate cash runways and potential commercial or M&A value. As a result, several small drugmakers remain significantly undervalued despite improving sector sentiment. Some small drugmakers with differentiated pipelines, promising clinical data, strong cash positions and clearly defined catalysts could offer substantial upside, albeit with considerably higher risk than established pharmaceutical companies.
Among small drugmakers, Indivior Pharmaceuticals (INDV - Free Report) , Ironwood Pharmaceuticals (IRWD - Free Report) , Relmada Therapeutics (RLMD - Free Report) , Larimar Therapeutics (LRMR - Free Report) and Cardiol Therapeutics (CRDL - Free Report) are worth considering in the Zacks Medical-Drugs industry.
Industry Description
The Zacks Medical-Drugs industry comprises small and some medium-sized drug companies that make medicines. We have a separate industry outlook discussion on big drugmakers. Small drugmakers have a limited portfolio of marketed drugs or no commercial 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 costs.
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.
Innovation is at its peak, with key spaces like rare diseases, next-generation oncology treatments, obesity/cardiometabolic, immunology/inflammatory diseases and neuroscience attracting investor attention.
Strong M&A Activity: 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. The trend is shifting more toward smaller and mid-size “bolt-on” strategic acquisitions rather than mega-mergers.
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: 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 a Short-Term Gloomy Picture
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 #166, which places it in the bottom 33% of the 247 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 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 Versus S&P 500 and Sector
The Zacks Medical-Drugs industry is a huge 138-stock group within the broader Medical sector. The industry has underperformed the S&P 500 and the Zacks Medical sector so far this year.
Stocks in this industry have collectively declined 2.9% so far this year against the Zacks Medical sector’s increase of 0.3%. The Zacks S&P 500 composite has risen 11.4% in the said time frame.
YTD Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-sales ratio (P/S F12M), which is a commonly used multiple for valuing these small drugmakers, the industry is currently trading at 2.09, compared with the S&P 500’s 4.71 and the Zacks Medical sector's 2.24.
Over the last five years, the industry has traded as high as 2.91, as low as 1.94 and at the median of 2.13, as the chart below shows.
Forward 12-Month Price-to-Sales (P/S) Ratio
5 Drug Stocks to Bet On
Indivior Pharmaceuticals: North Chesterfield, VA-based Indivior’s commercial portfolio is anchored by its flagship product, Sublocade, a first-in-class long-acting injectable treatment for moderate-to-severe opioid use disorder (OUD). Indivior remains a leader in opioid use disorder treatment, with Sublocade increasingly driving growth.
The product continues to gain traction through record patient starts, growing prescriber adoption, and a leading share of the U.S. long-acting injectable market. The company is also benefiting from a major restructuring program, supporting strong earnings and EBITDA growth. Additionally, the large and persistent opioid addiction market provides a favorable long-term growth opportunity.
However, Indivior's internal pipeline has suffered setbacks. In 2026, the company decided not to advance INDV-6001 into phase III development and also halted the internal development of INDV-2000 for opioid use disorder after disappointing phase II data.
In August 2026, Indivior agreed to combine with Supernus Pharmaceuticals in an all-stock merger of equals. The transaction is expected to be closed in the fourth quarter of 2026. Following completion, Supernus Pharmaceuticals will survive as a wholly owned subsidiary of Indivior, and Indivior will be renamed Supernus, Inc.
The stock of Indivior has declined 3.9% so far this year. The consensus estimate for 2026 earnings has risen from $3.57 per share to $3.66 per share over the past 60 days. The company has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: INDV
Larimar Therapeutics: CA-based Larimar Therapeutics is a clinical-stage company making medicines for rare diseases. Its lead pipeline candidate is nomlabofusp (CTI-1601), being developed as a potential treatment for Friedreich's ataxia (FA). Larimar Therapeutics has begun a rolling biologics license application (BLA) seeking accelerated approval of nomlabofusp for FA, with the first module submitted and completion expected later this year. Larimar plans to begin dosing in a global confirmatory phase III study in the third quarter. The company believes that nomlabofusp has the potential to be the first frataxin protein replacement therapy for patients with FA and targets a potential launch in mid-2027.
The stock of Larimar Therapeutics has risen 2.9% so far this year. The consensus estimate for 2026 loss has narrowed from $1.65 per share to $1.50 per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: LRMR
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. A phase III MAvERIC study is ongoing, evaluating CardiolRx in recurrent pericarditis.
The ARCHER program is studying CardiolRx in acute myocarditis. Top-line data from the completed phase II ARCHER study in acute myocarditis showed that CardiolRx led to a notable improvement in extracellular volume (ECV) over placebo. The data provide compelling clinical proof of concept for CardiolRx, supporting the advancement of the clinical development of this novel therapy for myocarditis and heart failure.
The stock of Cardiol Therapeutics has risen 109.2% so far this year. The consensus estimate for 2026 loss has narrowed from 25 cents per share to 19 cents per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: CRDL
Ironwood Pharmaceuticals: Cambridge, MA-based Ironwood Pharmaceuticals’ primary asset is Linzess, a leading treatment for irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (CIC). The drug continues to demonstrate healthy prescription demand growth and has treated millions of patients since launch.
Ironwood is also regularly getting approvals to expand Linzess' label, which is also supporting sales growth. Linzess is also well protected by patents and is not expected to face generic competition before March 2029.
Apraglutide, Ironwood's lead pipeline candidate for treating short bowel syndrome with intestinal failure (SBS-IF), represents a potentially game-changing growth opportunity for the company. In June, Ironwood initiated a confirmatory phase III study required to support regulatory approval of apraglutide in SBS-IF. Management believes that if successfully developed and approved, apraglutide has the potential to achieve blockbuster status.
The stock of Ironwood has risen 21.1% so far this year. The consensus estimate for 2026 earnings has risen from $1.04 per share to $1.10 per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: IRWD
Relmada Therapeutics: Coral Gables, FL-based Relmada Therapeutics’ lead pipeline candidate is NDV-01, being developed to treat patients with high-risk non-muscle invasive bladder cancer (NMIBC). RLMD’s NDV-01 is a sustained-release, intravesical formulation of gemcitabine and docetaxel.
Relmadaexpects to submit the NDV-01 investigational new drug or IND application by year-end 2026 and initiate the registrational phase III RESCUE study upon IND clearance. NDV-01 has the potential to become a best-in-class therapy for patients with NMIBC.
Relmada’s pipeline also includes sepranolone, a phase IIb-ready neurosteroid with the potential for treating Prader-Willi syndrome (PWS), Tourette Syndrome, essential tremor and other diseases related to excessive GABAergic activity. Relmada plans to initiate a phase IIb study in PWS once it gets clearance for its IND, which it expects to file by the end of this year.
The stock of Relmada Therapeutics has declined 6.4% so far this year. The consensus estimate for 2026 loss per share has narrowed from 82 cents to 60 cents over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: RLMD