In this article, we will be taking a look at the 10 best small-cap biotech stocks with massive potential according to hedge funds.
Revolutionizing Healthcare and Economy: The Rapid Growth of Biotechnology
The biotechnology sector is expanding quickly due to rising demand for novel therapies, technological advances, and government assistance. Advances in fields like gene editing, sequencing, personalized medicine, and artificial intelligence are making new techniques possible, while the aging population and growing healthcare demands are driving a robust market for new treatments. According to a report by McKinsey & Company, venture capital firms made approximately $52 billion in global investments in therapeutic-focused biotech companies between 2019 and 2021. Two-thirds of this sum was given to platform-tech start-up companies.
Despite its growth, many biotech companies have faced challenges in turbulent markets, taking drastic measures such as cutting programs and implementing significant layoffs to conserve cash. While recent rate cuts could encourage the revival of scientific projects, analysts like Jared Holz note the difficulty of gauging their impact. Holz also highlighted a shift in market dynamics, observing that biotech’s performance increasingly correlates with small-cap equities. If small-cap stocks trade well, biotech is likely to follow, though stagnation could occur if momentum fades. Notably, the idea of interest rates predicting biotech success is relatively new, emerging only after the pandemic, which reshaped the industry by driving substantial investment into therapeutic-focused companies.
With innovative treatments, biotech businesses are revolutionizing healthcare by tackling important unmet medical needs. Establishing the National Bioeconomy Board as a component of Biden’s Investing in America agenda is a significant breakthrough. It seeks to maximize biotechnology’s economic potential in the United States.
Furthermore, policy suggestions to expedite the approval process for biotechnology goods are being developed by the National Security Commission on Emerging Biotechnology. More academics will be able to use biotechnology for agricultural purposes if entry obstacles are reduced, which will benefit American farmers and increase food security. It is anticipated that these initiatives will open up new markets.
Pharmaceuticals as Defensive Investments and the 2024 Healthcare Market Outlook
This year (2024) started strongly for the biotechnology sector due to a rise in mergers and acquisitions as well as anticipations of falling interest rates. Therefore, estimates suggest that the worldwide biotechnology market might increase at a compound annual growth rate (CAGR) of around 14% from 2024 to 2033, reaching an astonishing $5.7 trillion. The market for agricultural biotechnology is also expected to develop at a 7.9% compound annual growth rate (CAGR) and reach $232 billion by 2032.
But even with the market’s potential, investing in biotech companies still carries a number of serious dangers. Bankruptcy may result from failing to satisfy clinical trial endpoints or obtain adequate finance before a product launch. In the biotech industry, where drug development usually takes more than ten years and has an estimated failure rate of about 90%, the danger of failure is very substantial. Hence, biotech stocks are often considered “high-risk, high-reward” investments due to their upside potential coupled with significant risks
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Our Methodology
In our methodology, we identified the top small-cap biotech stocks with significant growth potential, ranked according to their total hedge fund holdings as of Q2 2024. Our selection process began by filtering companies with a small market capitalization. Next, we reviewed analyst recommendations, focusing on stocks with strong bullish sentiment and high institutional ownership. Finally, we ranked these companies based on the number of hedge funds holding their shares as of Q2 2024.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Here is our list of the 10 best small-cap biotech stocks with massive potential according to hedge funds.
10. Corbus Pharmaceuticals Holdings, Inc. (NASDAQ:CRBP)
Number of Hedge Fund Holdings: 25
Corbus Pharmaceuticals Holdings, Inc. (NASDAQ:CRBP) is a precision oncology company focused on developing innovative therapies for cancer treatment. At its core, the company is working on creating drugs that target specific biological pathways involved in cancer growth and progression. The corporation’s primary focus is on developing two key experimental drugs: CRB-701, an antibody-drug conjugate (ADC) targeting Nectin-4 on cancer cells, and CRB-601, an anti-integrin monoclonal antibody that blocks TGFβ activation. These drugs are designed to treat solid tumors, with potential applications in urothelial, lung, breast, and prostate cancers.
Corbus Pharmaceuticals Holdings, Inc. (NASDAQ:CRBP) recently completed enrollment for the dose escalation part of its Phase 1 clinical trial for CRB-701, with data expected in early 2025. Additionally, new pre-clinical data for CRB-913 was presented at Obesity Week 2024, showing promising results in weight loss.
Corbus Pharmaceuticals Holdings, Inc. (NASDAQ:CRBP) is recognized as a promising small-cap biotech stock with significant potential. The company has experienced fluctuations in its financial performance. For the third quarter of 2024, the corporation reported a net loss of approximately $13.8 million, compared to a net loss of $10.1 million in the same period in 2023. The increase in net loss is primarily attributed to higher operating expenses, which rose by $6.0 million due to increased clinical trial costs for CRB-701 and IND-enabling studies for CRB-913.
As of Q3 2024, 25 hedge fund holders held stakes in the company with Cormorant Asset Management being the largest stakeholder with holdings worth $48.9 million, as tracked by the Insider Monkey database. Street analysts hold a consensus Strong Buy rating on the stock with an average price target of $88.00. This reflects a 78.39% increase from the current price of $49.33.
9. Scholar Rock Holding Corporation (NASDAQ:SRRK)
Number of Hedge Fund Holdings: 26
Scholar Rock Holding Corporation (NASDAQ:SRRK) is a biopharmaceutical company focused on developing innovative therapies for serious diseases. At its core, the company specializes in discovering and developing drugs that target growth factors, which are proteins that play crucial roles in various cellular processes.
Scholar Rock Holding Corporation (NASDAQ:SRRK) is emerging as one of the best biotech stocks, with its lead candidate, apitegromab, showing significant promise in treating SMA. The positive Phase 3 SAPPHIRE trial results highlighted meaningful motor function improvements, and the company plans to submit U.S. and EU regulatory applications in Q1 2025, paving the way for a potential commercial launch. Additionally, apitegromab’s Phase 2 EMBRAZE trial for obesity could broaden market opportunities, with topline data expected in Q2 2025.
Financially, Scholar Rock Holding Corporation (NASDAQ:SRRK) reported $463.5 million in cash following an October 2024 public offering, extending its runway into late 2026. R&D expenses increased to $48.7 million in Q3 2024, reflecting its commitment to advancing its pipeline. Investors are drawn to its innovative myostatin inhibition approach, strong clinical data, diversified programs in SMA, obesity, and oncology, and solid financial foundation.
As of Q3 2024, 26 hedge funds held stakes in the company with Samsara BioCapital being the largest stakeholder in the company with stakes worth $54.3 million. Street analysts have given the stock a Strong Buy rating. The average price target is $30.67 for Scholar Rock Holding Corporation (NASDAQ:SRRK), with a high of $34.00 and a low of $28.00. This reflects a 270.86% increase from the current price of $8.27.
8. Akero Therapeutics, Inc. (NASDAQ:AKRO)
Number of Hedge Fund Holdings: 30
Akero Therapeutics, Inc. (NASDAQ:AKRO) is a clinical-stage biotechnology company focused on developing innovative treatments for serious metabolic diseases, particularly non-alcoholic steatohepatitis (NASH). The company’s primary focus is on advancing efruxifermin (EFX), their flagship drug candidate designed to treat metabolic dysfunction-associated steatohepatitis (MASH), formerly known as NASH.
A major catalyst for Akero Therapeutics, Inc. (NASDAQ:AKRO) is the positive clinical trial results for its lead product candidate, efruxifermin (EFX), in treating NASH/MASH. In September 2022, the company announced that EFX successfully met the primary endpoint in its Phase 2b HARMONY trial, demonstrating significant improvements in liver fibrosis without worsening NASH.
Akero Therapeutics, Inc. (NASDAQ:AKRO) reported a Q3 2024 net loss of $72.71 million, up from $39.66 million in the same period last year, with a basic loss per share rising to $1.05 from $0.71. Operating expenses surged to $81.7 million, largely due to expanded clinical trials, while R&D expenses nearly doubled to $72.2 million which was driven by ongoing trials and manufacturing costs. Despite these losses, the company holds a strong cash position of $787.1 million, sufficient to fund operations into the second half of 2027. Akero Therapeutics, Inc. (NASDAQ:AKRO)’s strategic focus on the Phase 3 SYNCHRONY program for efruxifermin (EFX), targeting MASH, highlights its commitment to addressing a severe liver condition with a high unmet medical need, positioning EFX as a potential breakthrough treatment pending approval.
As of Q3 2024, there were 30 hedge funds that held stakes in the company with Alkeon Capital Management being the largest stakeholder in the company, according to Insider Monkey’s database. Street analysts hold a consensus Strong Buy rating on the stock. Over the past 3 months, analysts set a 12-month average price target of $50.00 for the company, with a high of $60.00 and a low of $38.00. This indicates an 85.46% increase from the current price of $26.96.
7. 89bio, Inc. (NASDAQ:ETNB)
Number of Hedge Fund Holdings: 30
89bio, Inc. (NASDAQ:ETNB) is a clinical-stage biopharmaceutical company focused on developing innovative therapies for liver and cardio-metabolic diseases. The company stands out with its focus on FGF21 analogs, especially BIO89-100, which has shown strong potential in clinical trials for NASH, demonstrating safety and significant reductions in liver fat and lipid markers. With a dual focus on NASH and SHTG, the company targets two large markets with one lead candidate. Its innovative use of glycoPEGylation technology enhances BIO89-100’s efficacy and durability, positioning the company competitively in the biotech field.
As of September 30, 2024, 89bio, Inc. (NASDAQ:ETNB) reported $423.8 million in cash, cash equivalents, and marketable securities, ensuring robust funding for its clinical trials and operations. In Q3 2024, R&D expenses rose to $141.4 million (from $31.4 million in Q3 2023) due to an $81 million milestone payment to BiBo Biopharma, increased clinical and manufacturing costs, and higher personnel expenses. G&A expenses also increased to $10.5 million from $7.9 million. The net loss for Q3 2024 widened to $149.1 million, reflecting the company’s investments in clinical progress, including pivotal Phase 3 trials for its lead candidate, pegozafermin, targeting MASH and SHTG. These trials aim to address significant unmet medical needs, with potential for accelerated approvals in the U.S. and Europe. Additionally, an amended credit facility with K2 HealthVentures provides access to up to $150 million, supporting 89bio, Inc. (NASDAQ:ETNB)’s growth.
As of Q3 2024, 30 hedge funds tracked by Insider Monkey held stakes in the stock, with RA Capital Management being the largest shareholder, holding $104.8 million in shares. Analysts have a Moderate Buy rating on the stock, with an average 12-month price target of $27.00, ranging from $12.00 to $34.00. This suggests a potential upside of 224.91% from the stock’s current price of $8.31. ETNB ranks fifth on our list of the best biotech stocks.
6. Cogent Biosciences, Inc. (NASDAQ:COGT)
Number of Hedge Fund Holdings: 31
Cogent Biosciences, Inc. (NASDAQ:COGT) is a biotechnology company focused on developing precision therapies for genetically defined diseases. At its core, the company designs and develops small molecule therapeutics to treat rare conditions with significant unmet medical needs. Cogent Biosciences, Inc. (NASDAQ:COGT) primary focus is on creating treatments for diseases driven by genetic mutations, particularly in oncology.
A major catalyst for the company is the advancement of its clinical trials, particularly the SUMMIT and PEAK studies. Cogent Biosciences, Inc. (NASDAQ:COGT) recently announced that its Phase 3 PEAK trial in patients with Gastrointestinal Stromal Tumors (GIST) has completed enrollment and advanced past the interim futility analysis. This progress suggests that bezuclastinib, the company’s lead candidate, is showing promise in treating GIST. Additionally, the corporation’s SUMMIT trial for Non-Advanced Systemic Mastocytosis (NonAdvSM) is on track, with positive data reported from Part 1b of the study.
A significant challenge for Cogent Biosciences, Inc. (NASDAQ:COGT) is the competitive nature of the biotech industry, particularly in the development of treatments for rare diseases. For instance, Blueprint Medicines has already secured approval for Ayvakit in the non-AdvSM market, giving them a first-mover advantage. The company’s bezuclastinib must demonstrate superiority to existing treatments to capture market share, which adds pressure to their clinical trial outcomes.
As of Q3 2024, 31 hedge fund holders held stakes in the company with Soleus Capital being the largest stakeholder as tracked by the Insider Monkey database. Street analysts hold a consensus Strong Buy rating on the stock. With an upside potential of over 58%, COGT is one of the best biotech stocks on our list.
5. Immatics N.V. (NASDAQ:IMTX)
Number of Hedge Fund Holders: 32
Immatics N.V. (NASDAQ:IMTX) is a clinical-stage biopharmaceutical company focused on developing innovative cancer immunotherapies. At its core, the company specializes in discovering and developing novel T-cell receptor (TCR)-based therapies for cancer treatment.
Immatics N.V. (NASDAQ:IMTX) is advancing two types of therapies: Engineered Adoptive Cell Therapies (ACTengine) and antibody-like TCR Bispecifics (TCER), aimed at different stages of solid tumors. Its lead candidate, IMA203, has demonstrated promising clinical results, with a 55% overall response rate and a median response duration exceeding 13 months, indicating the potential for breakthrough treatments in melanoma and other solid cancers.
Immatics N.V. (NASDAQ:IMTX), one of the best small-cap biotech stocks with massive potential according to hedge funds, reported a significant increase in total revenue, which rose to $56.7 million in Q3 2024, up from $6.6 million in the same quarter last year. This surge was primarily driven by a one-time revenue from the IMA401 partnership termination by Bristol Myers Squibb YoY.
The total value of cash and cash equivalents, as well as other financial assets, increased from $476.8 million in the same quarter last year to $549.2 million in Q3 2024. The increase, which was primarily brought on by the January 2024 public offering, was somewhat mitigated by ongoing research and development activities. Following its $150 million initial public offering (IPO) in October 2024, Immatics N.V. (NASDAQ:IMTX) currently projects a financial runway until the second half of 2027.
As of Q3 2024, 32 hedge funds held stakes in the company as tracked by the Insider Monkey database. The largest stakeholder in the company was Perceptive Advisors with holdings worth $92.2 million. Street analysts hold a consensus Strong Buy rating on the stock, with an average target of $18.00. The high forecast is $19.00, and the low is $16.00, representing a 90.48% increase from the current price of $9.45.
4. Nurix Therapeutics, Inc. (NASDAQ:NRIX)
Number of Hedge Fund Holdings: 32
Nurix Therapeutics, Inc. (NASDAQ:NRIX) is a biopharmaceutical company that specializes in developing innovative small-molecule drugs for cancer and inflammatory diseases. At its core, The company focuses on harnessing the body’s natural protein control system, specifically targeting a class of enzymes called E3 ligases. These enzymes play a crucial role in protein degradation within cells. Nurix Therapeutics, Inc. (NASDAQ:NRIX)’s approach involves either enhancing or inhibiting this natural process to treat various diseases.
A major catalyst for Nurix Therapeutics, Inc. (NASDAQ:NRIX) is its advancing clinical pipeline, particularly NX-5948, an orally bioavailable BTK degrader. The company recently presented positive Phase 1 data at the American Society of Hematology, supporting the acceleration of enrollment in leukemia and lymphoma trials. This progress could lead to faster development and potential market entry, driving investor interest and potential partnerships. Another significant catalyst is the corporation’s strategic collaborations with industry giants.
Nurix Therapeutics, Inc. (NASDAQ:NRIX) entered into a partnership with Seagen (now part of Pfizer) to develop Degrader-Antibody Conjugates (DACs), receiving a $60 million upfront payment with the potential for $3.4 billion in milestone payments. Such collaborations not only provide immediate financial benefits but also validate the company’s technology platform. Nurix Therapeutics, Inc. (NASDAQ:NRIX) faces challenges from intense competition in targeted protein degradation and the risks associated with drug development. The partial clinical hold on the NX-2127 Phase 1 trial underscores regulatory hurdles that could impact progress and investor confidence.
As of Q3 2024, 32 hedge funds invested in the company, with Redmille Group being the largest shareholder, holding $96.1 million in stakes, according to the Insider Monkey database. Analysts have a consensus Strong Buy rating for the stock, with an average price target of $29.27, ranging from a low of $15.00 to a high of $36.00. This suggests an 18.31% potential upside from its current price of $24.74.
3. Arvinas, Inc. (NASDAQ:ARVN)
Number of Hedge Fund Holdings: 34
Arvinas, Inc. (NASDAQ:ARVN) is a clinical-stage biopharmaceutical company that specializes in developing innovative protein degradation therapeutics. At its core, the company focuses on creating drugs that harness the body’s natural protein disposal system to selectively remove disease-causing proteins.
A major catalyst for Arvinas, Inc. (NASDAQ:ARVN) is its robust clinical pipeline, particularly its lead candidate vepdegestrant (ARV-471). This PROTAC protein degrader is being investigated for treating ER+/HER2- breast cancer. Clinical trials have yielded encouraging results, with a Phase 1b trial demonstrating a clinical benefit rate of 63% and an overall response rate of 41.9% among heavily pretreated patients. These outcomes have prompted the initiation of several Phase 3 trials, including VERITAC-2 and VERITAC-3, which could pave the way for regulatory approval if successful.
The company has shown impressive growth since its market debut in 2016, when it raised about $120 million through the issuance of approximately 7.5 million shares at $16 per share. The stock has experienced significant volatility, with notable gains in recent years. For instance, shares surged from around $22 in November 2023 to approximately $29, marking an impressive gain of nearly 35%.
Arvinas, Inc. (NASDAQ: ARVN) has emerged as one of the best biotech stocks, gaining notable hedge fund interest. The company reported impressive Q3 2024 financial results, with revenue surging to $102.4 million from $34.6 million in Q3 2023 which was driven primarily by $76.7 million from the Novartis license agreement, which offset declines in collaborations with Pfizer and Bayer. The corporation maintains a strong cash position of $1.1 billion, ensuring an operational runway into 2027. R&D expenses rose slightly to $86.9 million from $85.9 million, while G&A expenses increased significantly to $75.8 million from $22.6 million, reflecting strategic investments.
As of Q3 2024, 34 hedge funds held stakes in Arvinas, Inc. (NASDAQ: ARVN), with EcoR1 Capital being the largest shareholder, holding $165.7 million in the company, according to the Insider Monkey database. Analysts have a consensus Strong Buy rating on the company, with an average price target of $61.14, ranging from a low of $48.00 to a high of $87.00. This represents a potential upside of 144.85% from the current price of $24.97.
2. Kura Oncology, Inc. (NASDAQ:KURA)
Number of Hedge Fund Holdings: 36
Kura Oncology, Inc. (NASDAQ:KURA) is a clinical-stage biopharmaceutical company focused on developing precision medicines for the treatment of cancer. At its core, the company designs and develops targeted therapies that aim to improve outcomes for patients with various types of solid tumors and blood cancers.
A major catalyst for Kura Oncology, Inc. (NASDAQ:KURA) is the development of ziftomenib, its lead drug candidate. Ziftomenib, an oral medication targeting the menin-MLL1 protein-protein interaction, has received a Breakthrough Therapy Designation for patients with relapsed/refractory NPM1-mutant acute myeloid leukemia (AML). This designation could accelerate the drug’s path to market, potentially leading to increased revenue and market share. Another catalyst is the company’s expanding clinical trial program. The corporation has completed enrollment in a Phase 2 registration-directed trial of ziftomenib (KOMET-001) and is conducting multiple clinical trials to evaluate ziftomenib in combination with current standard-of-care regimens.
Kura Oncology, Inc. (NASDAQ:KURA) reported significant financial developments in Q3 2024, with research and development expenses increasing to $41.7 million from $29.3 million in Q3 2023 which was driven by higher clinical trial costs for key programs such as ziftomenib and KO-2806. General and administrative expenses also rose to $18.2 million from $13.1 million, contributing to a net loss of $54.4 million, up from $38.6 million in the prior year. The company maintains a strong cash position of $455.3 million, ensuring operational funding into 2027.
As of the third quarter of 2024, 36 hedge funds had investments in the company, with Suvretta Capital Management being the largest shareholder, holding stakes valued at $149.5 million, according to the Insider Monkey database. Analysts on Wall Street have a consensus Strong Buy rating for the stock. Over the past three months, analysts have set a 12-month price target of $30.89, with estimates ranging from a low of $22.00 to a high of $37.00. This represents a potential upside of 52.47% from the current price of $20.26.
1. Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX)
Number of Hedge Fund Holdings: 49
Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX) is a clinical-stage biopharmaceutical company focused on developing innovative cancer therapies. The company creates novel drugs targeting specific molecular pathways involved in cancer progression. Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX)’s primary focus is on two key drug candidates: revumenib for acute leukemias and axatilimab for chronic graft-versus-host disease (cGVHD).
The company’s Revumenib, currently under Priority Review by the FDA for relapsed/refractory KMT2Ar acute leukemia, has a PDUFA action date of December 26, 2024. This approval could significantly impact the market for acute leukemias. Axatilimab is also under Priority Review for refractory chronic graft-versus-host disease (cGVHD), with a PDUFA action date of August 28, 2024. Approval for this indication would address a critical unmet need in transplant patients. These potential approvals could propel Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX) from a clinical-stage company to a commercial entity with multiple revenue streams.
Financially, the corporation reported a net loss of $84.1 million for Q3 2024 which was driven by increased R&D and SG&A expenses due to clinical trials and commercial readiness. Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX) expects total operating expenses for 2024 to be between $365 and $370 million, with R&D expenses projected at $245 to $250 million. The company also entered into a $350 million royalty financing agreement with Royalty Pharma to fund operations through profitability based on U.S. sales of Niktimvo. As of September 30, 2024, Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX) had cash and investments totaling $399.6 million, which, along with other funding sources, is expected to support operations until profitability is reached.
As of Q3 2024, 49 hedge funds, tracked by Insider Monkey, held stakes in the company with Kynam Capital being the largest stakeholder with shares worth $112.4 million. Based on recent forecasts from 11 analysts, the average 12-month price target for Syndax Pharmaceuticals is $34.56, with a high of $45.00 and a low of $23.00, representing a 92.00% increase from the current price of $18.00.
Overall, SNDX ranks first among the best small-cap biotech stocks. While we acknowledge the potential of biotech companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SNDX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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