Small Drugmakers Outperforming The Bigshots: 7 Stocks To Buy
Zacks Investment Research | Apr 02, 2019 09:16PM ET
While many investors eye large companies for safe investing, small companies are in fact a great place to find big investment returns. At present, this holds true for the specialty-pharma sector wherein smaller drugmakers are performing better than their larger counterparts.
Most of these drugmakers either have a small marketed drugs portfolio or no commercial-stage drugs at all. Some of these clinical stage drugmakers are dependent on just one pipeline candidate. Thus, the success or failure of the pipeline candidate/s in clinical studies can significantly impact the stock’s price.
A partnership deal with a popular drug maker is a good sign about the potential of the small pharma companies, especially when there's an equity investment included in the deal. For most of these companies, upfront or milestone payments from collaboration partners — in most cases their larger counterparts — are the only source of revenues. These companies therefore need ample free cash flow to fund their huge R&D costs. Smaller companies are also likely to benefit more from increasing M&A activity in the medical sector this year.
For these companies, succeeding in a shifting global market and evolving healthcare landscape requires them to adopt innovative business models, invest in new technologies, increase investments in personalized medicines and seek external partners and collaborators for complementary strengths.
These smaller innovative companies, in general, are having a relatively better year than their larger counterparts, which are in trouble due to generic competition for their key drugs, pricing issues and rising competition. Successful innovation resulting in new drug approvals, important advances in clinical studies of their pipeline candidates, strategic collaborations with strong partners and frequent M&A activity have kept the companies afloat in an aggressive competitive market.
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