5 Small Drug Stocks to Buy Amid Trump's New Tariff Threats

The uncertainty around tariffs and trade production measures has muted economic growth. President Trump has once again threatened to impose heavy tariffs, as high as 200%, on pharmaceutical imports. Trump’s repeated threats to impose tariffs on pharmaceutical imports are aimed at encouraging American pharmaceutical companies to shift their production back to the United States, primarily from European and Asian countries. Trump has said that drugmakers have about one to one and a half years to bring production back to the United States before the new tariffs are imposed. However, despite the threat of a 200% tariff, the biotech sector remained stable. The delay brings relief for the sector. Moreover, most global pharma companies have already committed to investing in boosting domestic manufacturing.

Amid the tariff headwinds, the Zacks Medical-Drugs industry is showing promising trends backed by positive pipeline and regulatory developments.
Innovation is at its peak with key spaces like rare diseases, next-generation oncology treatments, obesity, immunology and neuroscience attracting investor attention. M&A activity also remains healthy. These factors should continue to drive stocks like Catalyst Pharmaceuticals CPRX, Zevra Therapeutics ZVRA, Theravance Biopharma TBPH, Aldeyra Therapeutics ALDX and Larimar Therapeutics LRMR.

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 #96, which places it in the top 39% of the 245 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 Versus S&P 500 and Sector

The Zacks Medical-Drugs industry is a huge 155-stock group within the broader Medical sector. The industry has outperformed the Zacks Medical sector while slightly underperforming the S&P 500 so far this year.

Stocks in this industry have collectively risen 5.6% year to date against the Zacks Medical sector’s decrease of 2.9%. The Zacks S&P 500 composite has risen 6.9% 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 2.32, compared with the S&P 500’s 5.66 and the Zacks Medical sector's 2.37.

Over the last five years, the industry has traded as high as 3.56, as low as 1.93 and at the median of 2.42, as the chart below shows. 

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

5 Drug Stocks to Bet On

Catalyst Pharmaceuticals: Coral Gables, FL-based Catalyst Pharmaceuticals’ lead drug is Firdapse, which is approved for treating Lambert-Eaton Myasthenic Syndrome (LEMS), an ultra-rare disease. The drug has been witnessing strong demand driven by increasing prescription rates and new patient starts. In January 2025, Catalyst settled Firdapse patent litigation with Teva, protecting the drug’s exclusivity in the United States till Feb. 25, 2035.  Agamree, its newest acquired muscle disorder drug, was launched in the U.S. market in 2024. With Agamree’s approval and launch, Catalyst has further diversified its commercial portfolio.

The stock of Catalyst Pharmaceuticals has risen 0.4% so far this year. The consensus estimate for 2025 earnings has risen from $2.23 per share to $2.25 per share over the past 60 days. The company has a Zacks Rank #2 (Buy). 

Price and Consensus: CPRX

Theravance Biopharma: Cayman Islands-based Theravance Biopharma generates revenues in the United States from its collaboration with Viatris related to the sales of Yupelri, a nebulized therapy for chronic obstructive pulmonary disease. The product has been witnessing a strong sales uptake owing to increased customer demand, resulting in increased collaboration revenues for Theravance. The company’s ongoing restructuring initiatives are saving costs. Theravance is currently focusing on developing its pipeline candidate, ampreloxetine, a norepinephrine reuptake inhibitor for the treatment of symptomatic neurogenic orthostatic hypotension in patients with multiple system atrophy in the phase III CYPRESS study. The CYPRESS study is expected to complete patient enrollment by late summer of 2025. Top-line data from the same is expected six months after enrollment is completed.

The stock of Theravance Biopharma has risen 22.6% so far this year. The consensus estimate for 2025 earnings has declined from 3 cents per share to 1 cent per share over the past 60 days. The company has a Zacks Rank #2.

Price and Consensus: TBPH

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 plans to file a biologics license application seeking accelerated approval of nomlabofusp for FA in the second quarter of 2026. Larimar plans to expand the nomlabofusp clinical program to patients around the world with the initiation of a global phase III study. The company believes that nomlabofusp has the potential to be the first frataxin protein replacement therapy for patients with FA.

The stock of Larimar Therapeutics has declined 18.3% so far this year. The consensus estimate for 2025 loss has narrowed from $1.90 per share to $1.89 per share over the past 60 days. The company has a Zacks Rank #2.

Price and Consensus: LRMR

 

Zevra Therapeutics: Early adoption of ZVRA’s newly approved Miplyffa capsules for treating Niemann-Pick disease type C (NPC) has exceeded the company’s expectations. Miplyffa was approved by the FDA in September 2024 as the first treatment for this ultra-rare disease. Zevra plans to file a regulatory application seeking approval of Miplyffa capsules in the EU in the second half of 2025. In April 2025, Zevra sold its Pediatric Rare Disease Priority Review Voucher (“PRV”) for gross proceeds of $150 million, which has strengthened its cash position.

The stock of Zevra Therapeutics has risen 53.4% so far this year. The earnings estimate for 2025 has risen from 31 cents per share to 76 cents per share over the past 60 days. The company has a Zacks Rank #2.

Price and Consensus: ZVRA

Aldeyra Therapeutics: Burlington, MA-based Aldeyra Therapeutics is a leader in the development of RASP (reactive aldehyde species) modulators for the treatment of immune-mediated disease. Its late-stage pipeline candidates are reproxalap, a RASP modulator for the treatment of signs and symptoms of dry eye disease, and ADX-2191, a novel formulation of intravitreal methotrexate for the potential treatment of retinitis pigmentosa. In June, Aldeyra Therapeutics resubmitted a new drug application (NDA) to the FDA for reproxalap, including data from the Dry Eye Chamber study, which achieved the primary endpoint. The FDA had earlier issued a complete response letter to Aldeyra’s NDA for reproxala in April, requiring the company to conduct an additional symptom study for resubmission. Its other product candidates include RASP (reactive aldehyde species) modulators ADX-629, ADX-248, ADX-743 and ADX-631.

The stock of Aldeyra Therapeutics has declined 0.4% so far this year. The consensus estimate for 2025 loss has narrowed from $1.03 per share to 90 cents per share over the past 60 days. The company has a Zacks Rank #2.

Price and Consensus: ALDX

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 
Catalyst Pharmaceuticals, Inc. (CPRX): Free Stock Analysis Report
 
Theravance Biopharma, Inc. (TBPH): Free Stock Analysis Report
 
Aldeyra Therapeutics, Inc. (ALDX): Free Stock Analysis Report
 
Larimar Therapeutics, Inc. (LRMR): Free Stock Analysis Report
 
Zevra Therapeutics, Inc. (ZVRA): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research