In this article, we will take a look at the 11 best biotech penny stocks to buy now. To see more such companies, go directly to 5 Best Biotech Penny Stocks to Buy Now.
As investors begin to see light at the end of the tunnel, their risk appetite, which had vanished amid recession risks and volatility, is coming back, creating chances of major investments in high-risk, high-reward sectors like biotechnology. But so far in 2023, the biotechnology sector hasn’t seen much improvement in terms of stock performances, despite major news and M&A activity. Both the S&P Biotech ETF and Nasdaq Biotechnology Index are trading in the red as of August 4, as compared to S&P 500’s strong performance in the same period. The biotech industry remained in the headlines this year amid new weight loss products, Alzheimer’s’ treatments, Pfizer’s $43 billion offer for Seagen, Merck’s $11 billion buyout of Prometheus Biosciences, among several other smaller deals.
AI in Biotech?
AI is also having an effect on the industry. Recently, Recursion Pharmaceuticals announced that it will receive $50 million in investments from Nvidia to accelerate the biotech company’s drug discovery platforms using AI. Recursion will use Nvidia DGX Cloud and its own 23-petabyte dataset of biological and chemical data to make drug discovery models. Recursion is just one of the many biotech companies using AI for drug discovery. Other companies are also finding opportunities in the biotech-AI space.
Schrödinger, for example, explained its AI-related drug discovery projects in its Q1 earnings call:
“We are thrilled with the recent progress of the drug discovery programs at companies we co-founded, including Nimbus Structure and Morphic. These programs, which are now in the clinic, serve as very strong validation of our unique approach and give us tremendous confidence in the potential of our own proprietary pipeline. As you will hear from Karen, we have made very important progress with our pipeline this quarter. We now have 2 Phase I studies of our MALT1 inhibitor SGR-1505 underway. And our IND submission for our CDC7 inhibitor, SGR2921 is on track for the first half of this year. We are also making excellent progress across our collaborative programs, including advancing our SOS1KRAS program to development candidate status. This program is partnered with BMS and contributed significantly to our reported drug discovery revenue in the first quarter.
Our computational platform is the engine that enables the discovery of better therapeutics and novel materials faster and at lower cost compared to traditional methods. We continue to invest in our platform to push the frontiers of molecular discovery. Our initiatives include focusing on expanding the number of addressable targets. We, for example, recently published research showing how our computational methods can be used to refine AI-generated protein structures to sufficiently high accuracy to be useful in physics enabled drug discovery. Our Q1 results illustrate the broad opportunities we have to create value from our unique computational platform. We reported strong contributions from our software business, significant milestones and new capital from our collaborations and successfully transitioned our proprietary portfolio into the clinic.”
Why Aren't Biotech Stocks Moving?
And yet the biotech industry is failing to gain the momentum seen in other stocks, especially tech stocks. Talking to Bloomberg, Tim Opler, a managing director in health-care investment banking at Stifel, said that because of AI investors are more excited about technology stocks as they don’t want to miss the broader rally of tech stocks fueled by AI. That’s why most of the investments are going to AI instead of life sciences or biotech segments. Biotech stocks are also failing to gain traction because of a strict regulatory environment around drug prices, scrutiny of major deals between biotech companies and analyst warnings that we are still not out of recession risks.
When there’s volatility and everyone is tightening their belt, biotech companies struggle to thrive and usually become the biggest victims of cost cutting since their profits lie far in the future. A Bloomberg report cited data from Mizuho Securities analyst Mara Goldstein, who said that so far in 2023 a whopping 88 biotech companies have restructured, compared to 63 in the same period in 2022. A lot of companies had to forgo their clinical trials of experimental drugs to save cash.
But not all is bad in the industry. Many companies recently posted strong results from their clinical trials. Recently there were IPOs as well, including those of Apogee Therapeutics Inc., Sagimet Biosciences Inc. and Turnstone Biologics Co. According to Bloomberg, Christian Richard, head of public research at Samsara Biocapital, believes these events will help the industry, but he still believes the sector needs more “thematic events” to cause a widespread rebound. Richard is also hopeful that new treatments for weight loss, immunologic disorders and Alzheimer’s disease will renew interest of investors in the sector.
Photo by National Cancer Institute on Unsplash
A Test of Investors' Patience
There’s a reason why biotech is one of the sectors that suffer when financial markets face volatility. According to a report by S&P Global, investments in the biotechnology sector can test investors’ patience because it takes a long time for a new drug to the pharmacy shelf from test tube. There are many states in between these two stages, like make or break trials and studies, which always keep investors on their toes. The report also said that the biotech space is risky since chances of failure of new drugs are “exceptionally” high. The report also said that the discovery of new drugs is an “expensive, slow and risky business.”
“Typically, 85%-95% of all new drugs fail to reach approval.1 Historically, many biotech companies have experienced serious losses after failing critical research or drug trials.”
The S&P Global report, which was published back in 2019, said that most of the biotech companies in the US were private and were funded by venture capital. However, it said that the number of publicly listed biotech companies was rising.
Methodology
For this article we scanned Insider Monkey's database of 943 hedge funds and picked 11 biotech penny stocks with the highest number of hedge fund investors. Therefore, these stocks are the best biotech penny stocks to buy according to hedge funds.
Best Biotech Penny Stocks to Buy Now
11. Karyopharm Therapeutics Inc. (NASDAQ:KPTI)
Number of Hedge Fund Holders: 22
Karyopharm Therapeutics Inc. (NASDAQ:KPTI) makes drugs directed against nuclear export for the treatment of cancer and other diseases. A total of 22 hedge funds in Insider Monkey’s database of 943 funds reported owning stakes in Karyopharm Therapeutics Inc. (NASDAQ:KPTI) as of the end of the first quarter.
Recently, it was reported that Karyopharm Therapeutics Inc. (NASDAQ:KPTI) was granted Fast Track designation the company’s selinexor for myelofibrosis. In May Karyopharm Therapeutics Inc. (NASDAQ:KPTI) posted Q1 results. Adjusted EPS in the period came in at -$0.30 beating estimates by $0.08. Revenue in the quarter fell 18.8% year over year to $38.7 million, beating estimates by $1.49 million.
10. Sutro Biopharma, Inc. (NASDAQ:STRO)
Number of Hedge Fund Holders: 22
Sutro Biopharma, Inc. (NASDAQ:STRO) is a clinical-stage biotech company working on oncology treatments. Sutro Biopharma, Inc. (NASDAQ:STRO) ranks 10th in our list of the best biotech penny stocks to buy now.
A total of 22 hedge funds in Insider Monkey’s database of 943 hedge funds reported owning stakes in Sutro Biopharma, Inc. (NASDAQ:STRO). The most notable hedge fund stakeholder of Sutro Biopharma, Inc. (NASDAQ:STRO) was Aaron Cowen’s Suvretta Capital Management which owns a $26 million stake in the company.
9. Wave Life Sciences Ltd. (NASDAQ:WVE)
Number of Hedge Fund Holders: 22
Wave Life Sciences Ltd. (NASDAQ:WVE) is a clinical stage genetic medicine company. In July, Raymond James started covering Wave Life Sciences Ltd. (NASDAQ:WVE) with an Outperform rating, citing the company’s lead candidate WVE-006 for alpha-1 antitrypsin deficiency (AATD). Raymond James has a $7 price target on Wave Life Sciences Ltd. (NASDAQ:WVE).
Among the biggest hedge fund stakeholder of Wave Life Sciences Ltd. (NASDAQ:WVE) are Peter Kolchinsky’s RA Capital Management, Marc Elia’s M28 Capital, and Lee Ainslie’s Maverick Capital.
8. EQRx, Inc. (NASDAQ:EQRX)
Number of Hedge Fund Holders: 22
Massachusetts-based EQRx, Inc. (NASDAQ:EQRX) is focused on making treatments related to oncology and inflammatory diseases.
As of the end of the first quarter of 2023, 22 hedge funds tracked by Insider Monkey had stakes in EQRx, Inc. (NASDAQ:EQRX).
7. Compass Therapeutics, Inc. (NASDAQ:CMPX)
Number of Hedge Fund Holders: 23
Boston, Massachusetts-based Compass Therapeutics, Inc. (NASDAQ:CMPX) shares have gained about 6% over the past one year. In June, Compass Therapeutics, Inc. (NASDAQ:CMPX) said it will be added to the Russell 2000 and Russell 3000 Indexes.
As of the end of Marcy 2023, Compass Therapeutics, Inc. (NASDAQ:CMPX)’s cash and marketable securities stood at $175 million.
A total of 23 hedge funds tracked by Insider Monkey reported having stakes in Compass Therapeutics, Inc. (NASDAQ:CMPX). The most notable hedge fund stakeholder of Compass Therapeutics, Inc. (NASDAQ:CMPX) was Samuel Isaly’s OrbiMed Advisors which had a $73 million stake in the company.
6. Allogene Therapeutics, Inc. (NASDAQ:ALLO)
Number of Hedge Fund Holders: 23
California-based Allogene Therapeutics, Inc. (NASDAQ:ALLO) makes genetically engineered allogeneic T-cell therapies for the treatment of cancer. In May Allogene Therapeutics, Inc. (NASDAQ:ALLO) announced Q1 results. GAAP EPS in the period came in at -$0.68, missing estimates by $0.06. Revenue in the period came in at $0.05 million, beating estimates by $0.04 million.
Insider Monkey’s database of 943 hedge funds shows that 23 hedge funds held stakes in Allogene Therapeutics, Inc. (NASDAQ:ALLO). The most significant stakeholder of Allogene Therapeutics, Inc. (NASDAQ:ALLO) during this period was Oleg Nodelman’s EcoR1 Capital which owns a $22 million stake in the company. The second biggest stakeholder of Allogene Therapeutics, Inc. (NASDAQ:ALLO) was Ken Griffin’s Citadel Investment Group which had a $21 million stake in the company.
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Disclosure: None. 11 Best Biotech Penny Stocks to Buy Now is originally published on Insider Monkey.
