5 Small Drug Stocks to Buy as Industry Recovery Picks Up

After a sluggish first half, the drug and biotech sector has staged a recovery over the past two to three months. This rebound was supported by major drugmakers signing drug pricing agreements with the Trump administration, which eased concerns around potential tariff-related impacts and removed a key policy overhang. Renewed momentum in mergers and acquisitions (M&A) has further strengthened investor sentiment across the industry.

At the same time, innovation remains a key growth driver, with high-interest areas such as obesity treatments, gene therapy, inflammation, and neuroscience drawing strong investor focus. However, the sector continues to face challenges, including pipeline setbacks, looming patent expirations and regulatory uncertainty.

Despite these headwinds, accelerating innovation, the expanding use of artificial intelligence in drug discovery and development, encouraging regulatory and clinical pipeline updates, and sustained M&A activity point to a constructive growth outlook for 2026.

Amid the improving macro backdrop, the Zacks Medical-Drugs industry is showing promising trends backed by a focus on innovation and positive pipeline/regulatory developments. In this scenario, Soleno Therapeutics SLNO, Nektar Therapeutics NKTR, Rigel Pharmaceuticals RIGL, Ironwood Pharmaceuticals IRWD 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 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.

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.

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 #90, which places it in the top 37% of the 244 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 141-stock group within the broader Medical sector. The industry has underperformed the Zacks Medical sector as well as the S&P 500 in the past year.

Stocks in this industry have collectively risen 1.2% in the past year compared with the Zacks Medical sector’s increase of 3.4%. The Zacks S&P 500 composite has risen 18.9% in the said time frame.

TTM Price Performance

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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 2.25, compared with the S&P 500’s 6.03 and the Zacks Medical sector's 2.61.

Over the last five years, the industry has traded as high as 3.59, as low as 2.0 and at the median of 2.43, as the chart below shows. 

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

5 Drug Stocks to Bet On

Ironwood Pharmaceuticals: Cambridge, MA-based Ironwood Pharmaceuticals is developing apraglutide, a once-weekly, long-acting synthetic glucagon-like peptide-2 (“GLP-2”) analog, for treating patients with short bowel syndrome (“SBS”) with intestinal failure (“IF”) who are dependent on parenteral support (PS). IRWD recently met with the FDA to align on a confirmatory phase III study design of apraglutide for SBS-IF. The company plans to initiate a confirmatory study on apraglutide in the first half of 2026. Apraglutide, a next-generation GLP-2 analog, has the potential to treat a range of rare gastrointestinal diseases and become a blockbuster drug.

Ironwood also witnessed improved demand for its partnered marketed drug, Linzess, in the second half of 2025. The company expects a significant improvement in Linzess’ sales in 2026 and subsequently Ironwood’s share of net profit from the sales of Linzess in the United States. Ironwood is also focused on Linzess’ label expansion efforts.

The stock of Ironwood Pharmaceuticals has risen 178.9% in the past three months. The consensus estimate for 2026 earnings has risen from 40 cents per share to 47 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: IRWD

Rigel Pharmaceuticals: Sales of Rigel’s lead product, Tavalisse, which is approved for treating chronic immune thrombocytopenia (“ITP”), are rising, driven by continued strong new patient demand. Sales rose around 54% in the first nine months of 2025.

Besides Tavalisse, Rigel is also seeing strong sales performance of its other marketed products, Rezlidhia (olutasidenib) and Gavreto (pralsetinib), which are approved for treating certain cancer indications. Rigel’s net product sales grew 69% the first nine months of 2025. Following a strong commercial performance, Rigel raised its total revenue guidance at the time of the third-quarter earnings release.

Looking ahead, sales are expected to grow steadily as Rigel expands its commercial footprint and strengthens its marketing infrastructure, driving continued momentum for Tavalisse while focusing on improving demand for Rezlidhia and Gavreto.

A key candidate in Rigel’s pipeline is R289, a novel dual IRAK1 and IRAK4 inhibitor, being developed in an early-stage study for treating patients with lower-risk myelodysplastic syndrome (MDS).

The company is also exploring Rezlidhia’s (olutasidenib) use beyond the approved indication of relapsed or refractory IDH1-mutated AML into other cancers with IDH1 mutations, such as recurrent glioma. 

The stock of Rigel has risen 46.7% in the past three months. The consensus estimate for 2026 earnings has risen from $3.70 per share to $4.30 per share over the past 60 days. The company has a Zacks Rank #1.

Price and Consensus: RIGL

Soleno Therapeutics: Based in Redwood City, CA, Soleno Therapeutics’ lead drug, Vykat XR (diazoxide choline) is the first and only FDA-approved therapy to treat hyperphagia in patients4 years and older with Prader-Willi syndrome (PWS), rare genetic disorder. Hyperphagia is a defining symptom of PWS.

Vykat XR’s launch uptake has been encouraging, with the drug generating around $99 million in net product sales since launch in April. Vykat XR is under review in the EU. An approval in the EU market will significantly expand the drug’s addressable market and can further drive revenue momentum. SLNO has a healthy cash position, which can support continued R&D and commercialization efforts

Soleno Therapeutics’ stock has declined 25.7% in the past three months. The consensus estimate for 2026 earnings has risen from $3.10 per share to $3.59 per share over the past 60 days. The company has a Zacks Rank #1.

Price and Consensus: SLNO

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. Data from the study demonstrated encouraging overall responses and a favorable safety profile in heavily pre-treated patients with Non-Hodgkin Lymphoma (NHL). Additional clinical data from the study is expected in the first half of 2026, which should be an important catalyst for the stock. Clinical studies on MT-601 in pancreatic cancer are also expected to begin in the first half of 2026.

Marker has also treated the first patient in a phase I study on its Off-the-Shelf (OTS) 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 risen 75.5% in the past three months. The consensus estimate for 2026 loss per share has narrowed from $4.92 to $1.86 over the past 60 days. The company has a Zacks Rank #1. 

 

 

Price and Consensus: MRKR

Nektar Therapeutics: San Francisco, CA-based clinical biotech, Nektar, is developing its lead product candidate, rezpegaldesleukin or rezpeg, in two separate phase IIb studies for atopic dermatitis (REZOLVE-AD study) and alopecia areata (REZOLVE-AA study). Rezpeg has the potential to become a highly differentiated treatment for atopic dermatitis and alopecia areata.

Rezpeg met key goals in the phase II REZOLVE-AD atopic dermatitis study. The company expects to advance rezpeg into phase III development for atopic dermatitis in the first half of 2026.

Earlier this month, the REZOLVE-AA study of rezpeg demonstrated proof of concept in patients with severe to very severe alopecia areata. Per management, the results support the planned advancement of rezpeg into phase III development for alopecia areata.

Studies on Nektar’s other candidate, NKTR-255, which is being developed for certain cancer indications, are also progressing well. The recent restructuring initiatives helped reduce costs and expenses.

The stock of Nektar Therapeutics has declined 26.0% in the past three months. The consensus estimate for 2026 loss per share has narrowed from $12.17 to $10.81 over the past 60 days. The company has a Zacks Rank #2 (Buy). 

Price and Consensus: NKTR

 

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Soleno Therapeutics, Inc. (SLNO): Free Stock Analysis Report
 
Ironwood Pharmaceuticals, Inc. (IRWD): Free Stock Analysis Report
 
Nektar Therapeutics (NKTR): Free Stock Analysis Report
 
Rigel Pharmaceuticals, Inc. (RIGL): Free Stock Analysis Report
 
MARKER THERAPEUTICS, INC. (MRKR): Free Stock Analysis Report

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

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