In this article, we will look at the 12 Biotech Stocks with the Biggest Upside Potential.
Improving Trends for Biotech Stocks
While 2024 was a “challenging” year for biotech stocks, JPMorgan is of the view that some names in the industry may be poised for considerable upside in the coming months. On November 28, Johan Hueffer, senior partner and principal of investments at Novo Holdings, appeared on CNBC to discuss his macro perspective on investments in life sciences. He said that biotechs faced difficulty raising capital in the last couple of years. However, that trend has started to improve in the last quarter or two.
Still, there have been impacts on companies that particularly service the pharmaceutical industry, such as contract research organizations (CROs), contract manufacturing organizations (CMOs), and companies that provide tools for research and development. Similar trends have been observed for companies that manufacture tools for production in the pharmaceutical and biotech industries. While these sectors have had ups and downs in the past two years, the trends are starting to normalize now. Hueffer was of the view that the industry is now showing considerable opportunity.
The Fed’s Rate Cuts and Biotech Stocks: Could There Be a Connection?
Similarly, Goldman Sachs shed light on biotech as an often overlooked sector in the investing space. In a note to clients, John Flood, Goldman’s Head of Americas Equities Sales Trading, said that biotech stocks posed an under-the-radar opportunity for investors looking to capitalize on the Fed’s recent rate cuts. Changes in interest rates uniquely affect biotech stocks as they are sensitive to them and often rely on projected future profits. These stocks are also heavily impacted by the cost of capital. Although there is little to no current profitability, these stocks have significant upside potential and pose an “option-like structure” if clinical trials succeed. This makes them especially responsive to changes and movements in interest rates.
Since September, the Fed cut a full point off the funds rate. According to CNBC, the current market pricing is showing just one or two more moves lower in 2025. On January 8, CNBC reported that the Federal Open Market Committee (FOMC) members voted to reduce the central bank’s benchmark borrowing rate to the 4.25%-4.5% target range. However, they also slashed their outlook for expected rate cuts for 2025, bringing it down to two from four and assuming quarter-point increments. These changes are expected to affect biotech stocks.
Flood’s note also highlighted that the biotech industry has recently shown improved fundamentals, attributed to a more favorable regulatory environment and positive clinical outcomes. Despite these tailwinds, Goldman’s data reflects that biotechnology remains under-owned by hedge funds. The sector ranked in the 13th percentile in hedge fund long/short positioning over the past year. Furthermore, it ranked in the 4th percentile over the past five years.
With these trends in view, let’s look at the 12 biotech stocks with the biggest upside potential.
A biotechnologist in a lab setting, examining a sample of liquid for research and development.
Our Methodology
We used the Finviz stock screener to compile a list of 40 biotech stocks. We then selected the top 12 stocks with the highest analyst upside potential as of January 15, 2025. We have also included the market capitalization of the stocks as of the same date. The list is sorted in ascending order of analysts’ average upside potential. These stocks are also popular among elite hedge funds, as of fiscal Q3 2024.
Why do we care about what hedge funds do? 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).
12 Biotech Stocks with the Biggest Upside Potential
12. Revolution Medicines, Inc. (NASDAQ:RVMD)
Analyst Upside: 80.72%
Number of Hedge Fund Holders: 44
Revolution Medicines, Inc. (NASDAQ:RVMD) is a clinical-stage precision oncology company that develops novel targeted therapies. It discovers and develops cancer treatments through novel combination and monotherapy treatment regimens that enhance clinical benefits.
The company ended fiscal Q3 2024 with $1.55 billion in investments and cash, which can support its planned operations into 2027 based on its current operating plan. Revolution Medicines, Inc. (NASDAQ:RVMD) developed a roadmap of strategic development priorities for its operations at the beginning of 2024 for its three pioneering RAS(ON) inhibitors in clinical development. These included RMC-6236, RMC-6291 and RMC-9805. It has successfully executed and made significant progress across its key 2024 priorities, setting it up for long-term and sustainable progress across its goal of revolutionizing treatment for patients with RAS-addictive cancers.
Revolution Medicines, Inc. (NASDAQ:RVMD) is also initiating its first Phase 3 clinical study in second-line pancreatic cancer, reflecting a significant milestone in its evolution. It also has several disclosure milestones for the coming quarters and is well capitalized to continue advancing its pipelines in high-unmet-need cancers. The company ranks 12th on our list of the 12 biotech stocks with the biggest upside potential.
11. Ionis Pharmaceuticals, Inc. (NASDAQ:IONS)
Analyst Upside: 83.89%
Number of Hedge Fund Holders: 44
Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) develops and commercializes human therapeutic drugs using antisense technology. It functions through the Ionis Core segment, which generates a pipeline of drugs through a novel drug discovery platform.
The company recently attained the approval of TRYNGOLZA™ (olezarsen) as the first-ever therapy for familial chylomicronemia syndrome and launched the drug. In addition, the potential approval of donidalorsen drug for hereditary angioedema is expected to further evolve the company into a fully integrated commercial-stage biotechnology company that independently brings its medicines to patients.
The launch of TRYNGOLZA™ is expected to be the first of four independent Ionis product launches anticipated over the next three years. Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) also expects four key launches from its partnered programs within this period, reflecting optimism for its operations. The launch of these medicines is expected to create value for its stakeholders and increase its product and royalty revenue in the long term. Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) ranks 11th on our list.
