Zacks Industry Outlook Madrigal, Corcept, Catalyst Larimar and Theravance

The drug industry witnessed major policy changes during Joe Biden's four-year term as U.S. President, including the historic Inflation Reduction Act (“IRA”). With Donald Trump’s reelection, the biotech industry hopes to witness more innovation and mergers and acquisitions (M&A) activity. Efforts to repeal the IRA look likely. However, it all depends on who is appointed to key roles at federal health agencies. Drug pricing reforms are expected to remain a key priority for the new government. Trump, in his previous term, had put stress on control of drug prices, though it was not highlighted in his election campaign this time around. Regular pipeline setbacks, slow ramp-up of newer drugs, Federal Trade Commission’s (FTC) scrutiny of M&A deals and broader macroeconomic uncertainty are some of the other headwinds for the sector.

Nonetheless, the Zacks Medical-Drugs industry is showing promising trends in 2024 amid increased M&A and positive pipeline news. 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).

These positive factors should keep driving stocks like Madrigal Pharmaceuticals MDGL, Corcept Therapeutics CORT, Catalyst Pharmaceuticals CPRX, Larimar Therapeutics LRMR and Theravance Biopharma TBPH.

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 an 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 #75, which places it in the top 30% 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 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 171-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 3.4% year to date against the Zacks S&P 500 composite’s rise of 24.7% and the Zacks Medical sector’s increase of 2.1%.

YTD Price Performance

U.S. stock markets started November, adding more steam to the ongoing rally. The primary reason was the anticipation of Donald Trump becoming the 47th president of the country. On Nov 5, Trump clinched a significant win in the Presidential election. On Nov 6, all three major stock indexes as well as small-cap benchmarks, jumped.

Consequently, several stocks have shown price strength. We have primarily targeted stocks that have recently been on a bull run. Such stocks have a high chance of carrying the momentum forward.

Five such stocks are — ChromaDex Corp. CDXC, Sezzle Inc. SEZL, Interface Inc. TILE, BGC Group Inc. BGC and Corcept Therapeutics Inc. CORT.

If a stock is continuously witnessing an uptrend, there must be a solid reason or it would have probably crashed. So, looking at stocks capable of beating the benchmark that they have set for themselves seems rational.

However, recent price strength alone cannot create magic. Therefore, other relevant parameters are needed to create a successful investment strategy.

Here’s how you should create the screen to shortlist the current as well as the potential winners.

Screening Parameters:

Percentage Change in Price (4 Weeks) greater than zero: This criterion shows that the stock has moved higher in the last four weeks.

Percentage Change Price (12 Weeks) greater than 10: This indicates that the stock has seen momentum over the last three months. This lowers the risk of choosing stocks that may have drawn attention due to the overwhelming performance of the overall market in a very short period.

Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

Average Broker Rating 1: This indicates that brokers are also highly hopeful about the stock’s future performance.

Current Price greater than 5: The stocks must all be trading at a minimum of $5.

Current Price/ 52-Week High-Low Range more than 85%: This criterion filters stocks that are trading near their respective 52-week highs. It indicates that these are strong enough in terms of price.

Just these few criteria narrowed down the search from over 7,700 stocks to 18.

Let’s discuss five out of these 18 stocks:

ChromaDex Corp. supply phytochemical reference standards and reference materials, related contract services, and products for the dietary supplement, nutraceutical, food and beverage, functional food, pharmaceutical and cosmetic markets. CDXC’s core business strategy is to use the intellectual property harnessed by its expertise in the area of natural products and in the creation of reference materials to the industry as the basis for providing new and alternative, green, mass marketable products to its customers.

CDXC’s main priority is to create industry-accepted information and provide products and services to every layer of the functional food, pharmaceutical, personal care and dietary supplement markets. ChromaDex markets and sells its products in the United States and Canada. CDXC offers its products through distributors in Europe, South America, Korea, India, Japan, Australia, New Zealand, China, Indonesia, Malaysia, Singapore, Thailand, and Mexico.

The stock price of ChromaDex has soared 115.1% in the past four weeks. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 100% over the last seven days.

Sezzle Inc. operates as a technology-enabled payments company primarily in the United States and Canada. SEZL provides its proprietary payments solution in-store and at online retail stores that connect consumers with merchants.

SEZL also offers the Sezzle Platform, which provides a payments solution for consumers that extends credit at the point-of-sale, allowing consumers to purchase and receive the ordered merchandise at the time of sale while paying in installments over time.

The stock price of Sezzle has jumped 54.9% in the past four weeks. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 0.1% over the last 90 days.

Interface Inc. designs, produces, and sells modular carpet products primarily worldwide. TILE operates in two segments, Americas, and Europe, Africa, Asia and Australia. TILE offers modular carpets under the Interface and FLOR brand names, luxury vinyl tiles, carpet tiles under the CQuestGB name for use in commercial interiors, include offices, healthcare facilities, airports, educational and other institutions, hospitality spaces, and retail facilities, as well as residential interiors, and modular resilient flooring products.

TILE also provides carpet replacement, installation, and maintenance services; and rubber flooring under the norament and noraplan brand names, as well as produces and sells an adapted version of its carpet tile for the healthcare facilities market.

The stock price of Interface has climbed 33.2% in the past four weeks. It has an expected earnings growth rate of 37% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7% over the last seven days.

BGC Group Inc. operates as a financial brokerage and technology company in the United States and internationally. BGC offers various brokerage products, such as fixed income, such as government bonds, corporate bonds, and other debt instruments, as well as related interest rate derivatives and credit derivatives, equities, energy and commodities, shipping, insurance, and futures and options.

BGC also provides trade execution, connectivity solutions, brokerage services, clearing, trade compression and other post-trade services, information, and other back-office services to an assortment of financial and non-financial institutions. In addition, BGC offers electronic and hybrid brokerage, other financial technology solutions, market data and related information services.

The stock price of BGC Group has surged 18.3% in the past four weeks. The company has expected earnings growth of 20.7% for the current year. The Zacks Consensus Estimate for the current year has improved 6.5% over the last seven days.

Corcept Therapeutics Inc. is engaged in the discovery and development of drugs for the treatment of severe endocrinologic, oncologic, metabolic, and neurologic disorders in the United States. CORT offers Korlym tablets medication for the treatment of hyperglycemia secondary to hypercortisolism in adult patients with endogenous Cushing's syndrome, and for those who have type 2 diabetes mellitus or glucose intolerance and have failed surgery or are not candidates for surgery.

CORT is also developing relacorilant, which is in phase III clinical trial for the treatment of Cushing's syndrome, treatment for adrenal cancer and cortisol excess, which is in phase 1b clinical trial, treatment for prostate cancer which is in phase II clinical trial and nab-paclitaxel in combination with relacorilant, which is in phase III clinical trial to treat platinum-resistant ovarian tumors.

The stock price of Corcept Therapeutics has advanced 18.1% in the past four weeks. It has an expected earnings growth rate of 39.4% for the current year. The Zacks Consensus Estimate for current-year earnings improved 10.1% over the last seven days.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

Zacks Investment Research

PTC Therapeutics (PTCT) came out with a quarterly loss of $1.39 per share versus the Zacks Consensus Estimate of a loss of $1.54. This compares to loss of $1.76 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 9.74%. A quarter ago, it was expected that this biopharmaceutical company would post a loss of $1 per share when it actually produced a loss of $1.16, delivering a surprise of -16%.

Over the last four quarters, the company has surpassed consensus EPS estimates two times.

PTC Therapeutics, which belongs to the Zacks Medical - Drugs industry, posted revenues of $196.79 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 13.41%. This compares to year-ago revenues of $196.58 million. The company has topped consensus revenue estimates two times over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

PTC Therapeutics shares have added about 56.7% since the beginning of the year versus the S&P 500's gain of 24.3%.

What's Next for PTC Therapeutics?

While PTC Therapeutics has outperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for PTC Therapeutics: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is -$1.64 on $167.26 million in revenues for the coming quarter and -$5.28 on $731.88 million in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Medical - Drugs is currently in the top 33% of the 250 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.

One other stock from the same industry, Theravance Biopharma (TBPH), is yet to report results for the quarter ended September 2024. The results are expected to be released on November 12.

This biopharmaceutical company is expected to post quarterly loss of $0.10 per share in its upcoming report, which represents a year-over-year change of -900%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.

Theravance Biopharma's revenues are expected to be $16.11 million, up 2.7% from the year-ago quarter.

Zacks Investment Research