Below we present the list of 5 Best Small-Cap Biotech Stocks with Massive Potential According to Hedge Funds. For our methodology and a more comprehensive list of top stocks in the biotech space, please see 12 Best Small-Cap Biotech Stocks with Massive Potential According to Hedge Funds.
5. Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX)
Number of Hedge Fund Shareholders: 36
The number of hedge funds long Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX) has ticked up steadily over each of the past four quarters, more than doubling during that time. Despite the influx of new funds into Amylyx, Joseph Edelman’s Perceptive Advisors and Andreas Halvorsen’s Viking Global have remained the top AMLX shareholders for more than a year.
Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX) shares have stumbled by 48.8% in 2023, with the latest blow coming in mid-October when the European Medicines Agency refused for a second time to recommend the company’s ALS treatment AMX0035 for marketing authorization in the EU. AMX0035 has already received FDA approval in the U.S as well as conditional approval in Canada.
Despite the recent setback, Mizuho Securities analyst Graig Suvannavejh maintained a ‘Buy’ rating on Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX) following the news, stating it wasn’t unexpected and had been somewhat baked into the stock’s 2023 struggles. He further noted that EU approval for AMX0035 could still be achieved following the conclusion of the late-stage study of the treatment, which is expected to wrap up around the middle of 2024. The analyst has a $48 price target on AMLX shares, more than twice their current value.
4. Vaxcyte, Inc. (NASDAQ:PCVX)
Number of Hedge Fund Shareholders: 37
There was a surge in hedge fund ownership of Vaxcyte, Inc. (NASDAQ:PCVX) during the second half of 2022, with the number of funds long PCVX more than doubling. Peter Kolchinsky’s RA Capital Management has an aggressive stake in Vaxcyte, owning over 7.89 million shares on June 30 worth over $394 million.
Vaxcyte, Inc. (NASDAQ:PCVX) shares have gained 7.52% this year, greatly outperforming the Nasdaq US Small Cap Biotechnology Index. They’ve been particularly robust since April 11, soaring by 46.4%. That surge began in earnest following the release of positive phase 2 trial data for VAX-24 in mid-April. The 24-Valent pneumococcal conjugate vaccine (PCV) candidate is being studied for the prevention of invasive pneumococcal disease (IPD). The company’s investigational drug application for VAX-31 was also cleared by the FDA in mid-October.
Bank of America has a $67 price target and ‘Buy’ rating on Vaxcyte, Inc. (NASDAQ:PCVX), with analyst Jason Gerberry pointing to the company’s manufacturing and supply agreement with Lonza as a huge boon. The agreement allows Vaxcyte to manufacture its vaccine candidates at a scale that would be challenging, if not impossible, for most small biotechs. The analyst also noted that Vaxcyte has maintained full ownership of its vaccines, with just a 4% royalty being owed out on future net sales.
3. ImmunoGen, Inc. (NASDAQ:IMGN)
Number of Hedge Fund Shareholders: 42
There was an even more dramatic leap in hedge fund ownership of ImmunoGen, Inc. (NASDAQ:IMGN) during Q2 than there was in DICE Therapeutics. The number of funds long IMGN doubled during the quarter to easily reach a new all-time high. Jeremy Green’s Redmile Group owns over 17.7 million ImmunoGen shares as of June 30.
ImmunoGen, Inc. (NASDAQ:IMGN)’s ovarian cancer treatment ELAHERE has shown promising results, achieving the primary endpoint in a recent trial. The company will release full data from the phase 3 trial next year and believes ELAHERE will hit an objective response rate of at least 48%. That could make it the current standard of care in FRα-positive, platinum-resistant ovarian cancer.
Analysts and hedge funds are divided over the drug’s sales potential however. The ClearBridge Multi Cap Growth Strategy thinks ELAHERE amounts to a “relatively modest opportunity” (more on that below), while others believe it has blockbuster potential. JP Morgan upgraded ImmunoGen to ‘Overweight’ from ‘Neutral’ in September, noting ELAHERE’s solid growth trajectory following its U.S launch. The firm has a $22 price target on IMGN.
The ClearBridge Multi Cap Growth Strategy sold off ImmunoGen, Inc. (NASDAQ:IMGN) in Q4 of last year, citing the company’s long road to profitability, which the fund discussed in its Q4 2022 investor letter:
“During the quarter we exited a position in ImmunoGen, Inc. (NASDAQ:IMGN), a biotechnology company developing antibody-drug conjugate therapies to treat cancer. ImmunoGen received FDA approval for Elahere for ovarian cancer, however it is a relatively modest opportunity and the company still faces a long road to reach meaningful profitability. The sale is also part of our effort to consolidate the portfolio in our highest conviction ideas.”
2. Alkermes plc (NASDAQ:ALKS)
Number of Hedge Fund Shareholders: 44
Alkermes plc (NASDAQ:ALKS) also hit an all-time high in hedge fund ownership during Q2, after steadily becoming more popular among top money managers over the past four years. Alex Denner’s Sarissa Capital Management already owned the largest ALKS stake heading into Q2, but raised the size of it by another 57% during the quarter to just over 14 million shares. The fund’s Alkermes position accounts for 43.7% of the value of its 13F holdings.
Alkermes plc (NASDAQ:ALKS) shares have slid by 26.3% since peaking towards the end of June. Preliminary results from the biopharmaceutical company’s phase 1 trial of narcolepsy treatment ALKS 2680 left investors questioning whether the drug remained active long enough for it to be a viable candidate for other sleep disorders.
Alkermes plc (NASDAQ:ALKS) is in the process of transitioning into a pure-play neuroscience company as it continues working towards the separation of its oncology business. Alkermes grew Q3 revenue by 51% year-over-year to $381 million, while non-GAAP net income jumped by $106 million to $109.5 million. Manufacturing and royalty revenue surged by 182% during the quarter. Piper Sandler maintained an ‘Overweight’ rating on Alkermes following the company’s Q3 earnings results, while Mizuho maintained its ‘Buy’ rating.
1. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS)
Number of Hedge Fund Shareholders: 53
Hedge funds poured into Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) in even greater numbers during Q2, as the number of funds long APLS rose by 27% to reach a new all-time high and propel it to the top of the list of best small-cap biotech stocks. Kurt Von Emster’s VenBio Select Advisor owns an eye-popping 11,111,111 shares of APLS as of June 30.
Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) shares fell off a cliff in mid-July after the Research and Safety in Therapeutics (ReST) Committee of the American Society of Retinal Specialists raised safety concerns about the company’s eye treatment Syfovre. The company tried to calm investors by noting that incidences of occlusive retinal vasculitis, a form of severe eye inflammation that leads to loss of vision, were extremely rare. Analsyts weren’t convinced however, with several dramatically slashing their price targets on the stock in the wake of the news.
Those safety concerns overshadowed a strong Q2 earnings report for Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), as Syfovre sales jumped to $67.3 million during the quarter from just $18.4 million in Q1, outpacing estimates. Those sales figures accounted for 71% of Apellis’ Q2 revenue, which is why so much rides on the market’s response to the latest safety concerns. If Syfovre’s sales continue to impress in the second half of this year, APLS could be poised for a big bounceback as worries over the impact those safety concerns will have on sales abates.
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