We recently compiled a list of the 10 Best Small-Cap Biotech Stocks with Massive Potential According to Hedge Funds. In this article, we are going to take a look at where Arvinas, Inc. (NASDAQ:ARVN) stands against the other small-cap biotech stocks.
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
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).
A biopharma executive in a meeting room discussing the clinical-stage of a new therapy.
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.
Overall ARVN ranks 3rd on our list of the best small-cap biotech stocks with massive potential according to hedge funds. While we acknowledge the potential of ARVN 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 timeframe. If you are looking for an AI stock that is more promising than ARVN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock
Disclosure: None. This article is originally published at Insider Monkey.
