5 Small Drug Stocks to Invest in Amid a Biotech Comeback
The drug and biotech sector is in a recovery mode, after going through a difficult period between 2022 and 2024, backed by strong quarterly results, surging mergers and acquisitions (M&A) activity and pipeline and regulatory successes.
Innovation remains a key growth driver, with high-interest areas such as obesity treatments, next-gen oncology drugs, immunology, gene editing, cell therapies and RNA-based medicines drawing strong investor focus. However, the sector continues to face challenges, including pipeline setbacks, looming patent expirations, regulatory uncertainty, drug-pricing pressure and broader macro challenges.
Despite these headwinds, accelerating innovation, the expanding use of artificial intelligence in drug discovery and development, encouraging regulatory and clinical pipeline updates and the resurgence of M&A activity point to a constructive growth outlook for 2026.
Amid the improving backdrop, the Zacks Medical-Drugs industry is showing promising trends backed by a focus on innovation and positive pipeline/regulatory developments. In this scenario, Indivior Pharmaceuticals INDV, Aurinia PharmaceuticalsAUPH, Ironwood Pharmaceuticals IRWD, AltimmuneALT and Marker Therapeutics MRKR) may prove to be good additions to one’s portfolio.
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, immunology 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. This year has already seen multiple multi-billion-dollar deals. 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: 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 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 #149, which places it in the bottom 40% 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 you with a few top-ranked stocks to capitalize on the 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 133-stock group within the broader Medical sector. The industry has outperformed the S&P 500 but underperformed the Zacks Medical sector so far this year.
Stocks in this industry have collectively declined 0.5% so far this year against the Zacks Medical sector’s increase of 1.9%. The Zacks S&P 500 composite has declined 2% in the said time frame.
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 2.26, compared with the S&P 500’s 5.94 and the Zacks Medical sector's 2.45.
Over the last five years, the industry has traded as high as 3.36, as low as 2.05 and at the median of 2.49, as the chart below shows.
Trailing 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, alongside Suboxone film and tablets, a daily buprenorphine/naloxone formulation for opioid dependence. Sublocade accounts for the majority of Indivior’s revenues.
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.
The stock of Indivior has risen 15.5% so far this year. The consensus estimate for 2026 earnings has risen from $3.33 per share to $4.05 per share over the past 60 days. The company has a Zacks Rank #1 (Strong Buy). .
Price and Consensus: INDV
Aurinia Pharmaceuticals: Canada-based Aurinia Pharmaceuticals makes medicines to treat autoimmune, kidney and rare diseases. It presently markets Lupkynis (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active lupus nephritis. The company recorded strong Lupkynis sales growth of 24% in the first quarter of 2026. Management expects total revenues to reach $315-$325 million in 2026, representing double-digit growth over 2025 levels. Lupkynis is emerging as a standard-of-care treatment for lupus nephritis.
Aurinia is also developing aritinercept, a potentially best-in-class dual inhibitor of BAFF and APRIL cytokines. It has the potential to treat a wide range of autoimmune diseases and is now in clinical development for three potential indications.
Aurinia Pharmaceuticals has a Zacks Rank #2 (Buy). The consensus estimate for 2026 earnings has been stable at 86 cents per share over the past 60 days. The stock has risen 16.7% so far this year.
Price and Consensus: AUPH
Altimmune: Gaithersburg, MD-based Altimmune is a late clinical-stage biotech focused on making therapies for liver diseases. Altimmune’s lead pipeline candidate, pemvidutide, a balanced 1:1 glucagon/GLP-1 dual receptor agonist, has a differentiated mechanism of action and “pipeline in a product” potential for treating liver diseases. It is being developed to treat serious liver diseases like metabolic dysfunction-associated steatohepatitis (“MASH”), alcohol use disorder (“AUD”) and alcohol-associated liver disease (“ALD”), which have a significant unmet need. A phase III study for MASH patients with moderate-to-severe liver fibrosis is expected to start in 2026. For the AUD and ALD indications, phase II studies are ongoing. Multiple catalysts are expected in 2026, including phase III initiation for MASH and phase II top-line data for AUD. Its promising pipeline makes it an attractive licensing or takeover target.
The stock of Altimmune has declined 18.3% so far this year. The consensus estimate for 2026 loss has narrowed from $1.00 per share to 69 cents per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: ALT
Ironwood Pharmaceuticals: Cambridge, MA-based Ironwood Pharmaceuticals’ primary asset is Linzess, a leading treatment for irritable bowel syndrome with constipation and chronic idiopathic constipation. The drug continues to demonstrate healthy prescription demand growth and has treated millions of patients since launch. Management expects U.S. Linzess net sales to reach $1.125-$1.175 billion in 2026
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. Ironwood recently reached an agreement with the FDA on the design of 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 16% so far this year. The consensus estimate for 2026 earnings has risen from 88 cents per share to $1.04 per share over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: IRWD
Marker Therapeutics: This Houston, TX-based cancer biotech is making next-generation T cell therapies for hematological malignancies and solid tumors, leveraging its multi-antigen recognizing (MAR) T cell platform. Marker is rapidly progressing a phase I APOLLO study on lead candidate, MT-601, in patients with relapsed or refractory B-cell lymphoma. Updated data from the study reported last August demonstrated encouraging clinical activity with a 66% objective response rate in relapsed non-Hodgkin lymphoma, including durable complete responses, with a favorable safety profile across evaluated doses. A data update from the APOLLO study is expected in the second quarter of 2026. Clinical studies on MT-601 in pancreatic cancer are also expected to begin in the second quarter of 2026.
Marker is also conducting a phase I study on its off-the-shelf candidate, MT-401 and entered into a strategic manufacturing collaboration with Cellipont to scale up production of MT-601. The stock of Marker Therapeutics has declined 12.1% so far this year. The consensus estimate for 2026 loss per share has narrowed from $1.19 to $1.17 over the past 60 days. The company has a Zacks Rank #2.
Price and Consensus: MRKR
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).
