We recently compiled a list of the 12 Best Small Cap Pharma Stocks to Buy Now.In this article, we are going to take a look at where Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) stands against the other small cap pharma stocks.

Impact of US Tariffs and Obesity Drug Performance on the Pharmaceutical Industry

Emily Field, Head of European Pharma Research at Barclays, spoke on CNBC on February 20 about the performance of obesity medications, the effects of US tariffs, and the dynamics of the pharmaceutical industry. According to her, the industry might not perform poorly at least in the first half of this year. The effectiveness of obesity medications is still up for debate, though, as leading companies in the field have shown inconsistent results.

Speaking about the tariffs, she stated that since some businesses assemble their products in the US after producing them overseas, their implementation raises several unanswered questions for the pharmaceutical industry. These businesses therefore have relatively low manufacturing costs, which is an important factor to take into account when assessing the effects of tariffs. She thought that these businesses could easily absorb the higher expense of the tariffs. The topic hasn't come up much on earnings calls this quarter, and the market is nearing the end of the reporting season.

Eli Lilly's Chief Scientific Officer spoke with CNBC's Health and Pharma correspondent Angelica Peebles about the weight reduction industry. The domain presents opportunities for easier-to-use treatments, including tablets, and medications that help individuals lose weight, she noted based on the conversation. How much weight reduction users need to observe on top of what they already have is another topic of discussion about the subject. According to Dan Skovronsky, Chief Scientific Officer of Eli Lilly, the majority of the audience seems to benefit from medications that provide about 20% weight loss. According to him, the market for stronger medications that offer at least 25% is smaller.

He also believed that the potential benefits of these weight reduction medications for a wide range of illnesses were the most fascinating thing he had witnessed in his work as a scientist and doctor. The patterns they have been observing in the answers from patients serve as their current source of knowledge.

Our Methodology

For our methodology, we selected stocks with a market capitalization between $250 million and $2 billion and ranked them based on the highest hedge fund sentiment according to Insider Monkey's database, as of Q4 2024.

Story Continues

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A medical laboratory surrounded by advanced equipment, symbolizing the company's cutting-edge innovation in healthcare.

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)

Number of Hedge Fund Holders: 29

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) stands fifth among the best small cap pharma stocks to buy now. It is a leading company focused on developing treatments for gastrointestinal (GI) diseases, with its main product, Linzess (linaclotide), being the top prescription treatment for irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (CIC) in the U.S. The company generates revenue through Linzess sales and collaborations with other companies like AbbVie. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) stands out for its deep expertise in the GI field and its strong pipeline of potential drugs, positioning it to address unmet medical needs and create significant market opportunities in the GI space.

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)'s Q3 2024 results show a mixed performance. Total revenue dropped to $91.6 million, down from $113.7 million in Q3 2023, mainly due to lower collaboration revenue from AbbVie related to Linzess. While prescription demand for Linzess grew by 13%, the company's revenue from the drug decreased because of pricing pressures.

Net income also saw a significant decline, falling to $3.6 million ($0.02 per share) from $15.3 million ($0.10 per share) in the same quarter last year. Adjusted EBITDA decreased to $26.2 million from $49.1 million, reflecting the impact of lower revenue and pricing challenges.

Linzess U.S. net sales dropped by 19%, from $279.0 million to $225.5 million. Collaboration revenue from AbbVie also decreased to $88.9 million, compared to $110.1 million in Q3 2023. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)'s focus remains on treating GI disorders, including IBS-C and CIC, with LINZESS, and they are also working on apraglutide for patients with short bowel syndrome (SBS). They expect to submit the NDA for apraglutide in Q1 2025, which could provide a major growth opportunity for the company.

Overall IRWD ranks 5th on our list of the best small cap pharma stocks to buy now. While we acknowledge the potential of IRWD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than IRWD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

Disclosure: None. This article is originally published at Insider Monkey.

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