For Immediate Release
Chicago, IL – June 22, 2021 – Today, Zacks Equity Research discusses Medical - Drugs including Xencor, Inc. XNCR, Organogenesis Holdings Inc. ORGO, Cumberland Pharmaceuticals Inc. CPIX and Acer Therapeutics Inc. ACER.
Sales of some drugs/vaccines/products were hurt by business disruption due to the coronavirus pandemic in the first quarter of 2021. Most companies expect the pandemic to continue to have some negative impact on sales in the second quarter though trends are expected to be better as economies reopen and vaccinations continue in full swing.
Meanwhile, successful innovation resulting in new drug/product approvals, important advances in clinical studies, and strategic collaborations with strong partners have kept companies like Xencor, Organogenesis Holdings, Cumberland Pharmaceuticals and Acer Therapeutics afloat.
The Zacks Medical-Drugs industry comprises small drug companies, which make medicines for both human and veterinary use. We have a separate industry outlook discussion for some of the biggest drugmakers of the world. Most of the small drugmakers have a limited portfolio of marketed drugs or in some cases no commercial-stage drugs at all.
Some of these 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 source of revenues. These companies therefore need ample free cash flow to fund their research activity.
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 stock price of the 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. Though M&A activity slowed down in 2020, collaborations with larger counterparts remained strong. M&A and collaborations activities are gradually picking up in 2021 as healthcare activity gradually becomes more normal.
Investment in Technology for Innovation: For these smaller companies, succeeding in a shifting global market and evolving healthcare landscape requires them to adopt innovative business models, invest in new technologies and increase 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 meaningful use of health IT, development of therapies that improve overall patient outcomes and investment in developing and emerging markets are some of the new priorities for drug companies, going forward.
Pipeline Setbacks: The smaller companies have their share of risk in the form of unstable cash flows. Also, 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 price in the future.
Zacks Industry Rank Indicates Uncertainty
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 #230, which places it in the bottom 9% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. The industry's earnings estimates for 2022 have moved down 30% over the past year.
Despite the bleak near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it's worth taking a look at the industry's shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Medical-Drugs industry is a huge 206-stock group within the broader Medical sector. The industry has underperformed the S&P 500 and the Zacks Medical sector this year so far.
Stocks in this industry have collectively declined 9.6% this year so far, while the Zacks S&P 500 composite has risen 11.8%. The Zacks Medical sector has remained flat.
Industry's Current Valuation
On the basis of trailing twelve 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 5.15 and the Zacks Medical sector's 3.12.
Over the last five years, the industry has traded as high as 4.38X, as low as 1.76X, and at the median of 2.50X.
4 Small Drug Stocks to Keep an Eye On
Cumberland Pharmaceuticals: This specialty pharmaceutical company's earnings estimate for 2021 has risen from breakeven per share to 8 cents per share over the past 60 days. This Zacks Rank #2 (Buy) stock has risen 1% this year so far. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Cumberland has a portfolio of seven FDA approved products. Its anti-infective, Vibativ, acquired from Theravance, is being prescribed to help COVID-19 patients who develop secondary bacterial infections in their lungs and is driving sales.
The company is continuing the soft launch of its FDA-approved RediTrex methotrexate line of products designed for the treatment of arthritis and psoriasis. A full launch is expected during the fall of 2021. Cumberland also has several phase II products in development with upcoming study milestones.
Organogenesis Holdings: This Zacks Rank #2 company is a leading regenerative medicine company focused on the development and commercialization of solutions for the Advanced Wound Care and Surgical & Sports Medicine markets. The stock has risen 119.2% in the past year. The consensus estimates for 2021 have risen from 11 cents per share to 33 cents per share over the past 60 days.
The company's first-quarter 2021 results were strong, reflecting significant year-over-year revenue growth across both the Advanced Wound Care and Surgical and Sports Medicine portfolios driven by strong sales of amniotic and PuraPly products. Sales of its PuraPly products have been above management's expectations.
The company expects continued strong operating and financial performance through the rest of the year. The recent strategic acquisition of CPN Biosciences will drive further growth in the office channel.
Xencor: This California based biotech focused on making medicines for cancer and autoimmune diseases has a Zacks Rank of 2. Loss estimates for 2021 have improved from $3.15 per share to $2.07 per share over the past 60 days. The stock has declined 15.4% this year so far.
At present 21 candidates engineered with Xencor's XmAb technology are being developed in clinical studies either by Xencor itself or by its partners. This year, Xencor expects to present maturing data from its clinical-stage programs.
It also plans to initiate several additional clinical studies in 2021 and early 2022. Last month, the FDA granted emergency approval to Xencor's partner Vir Biotechnology's COVID-19 antibody drug, sotrovimab (VIR-7831), which was developed utilizing Xencor's Xtent technology.
Acer Therapeutics: This Newton, MA based company develops and commercializes therapies for serious rare and life-threatening diseases. The company has a Zacks Rank of 2. Loss estimates for 2021 have improved from $1.42 per share to $1.12 per share over the past 60 days. The stock has risen 9.9% this year so far.
ACER has four pipeline candidates in its portfolio. It plans to file a new drug application seeking approval of ACER-001 (for the treatment of urea cycle disorders) in the third quarter. The outcome of the Type A meeting with the FDA last month was encouraging and no additional data was requested by the FDA.
ACER-001 is expected to provide benefits over currently marketed products. Meanwhile, ACER Therapeutics also signed a collaboration agreement for ACER-001 with Relief Therapeutics in early 2021. It is also progressing rapidly on development plans for its other three pipeline candidates.
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