On December 24, Jared Holz of Mizuho joined ‘Power Lunch’ on CNBC to talk about how to play biotech moving into 2026. Holz noted that healthcare has become the top-performing sector over the last 3 months as investors rotate away from high-valuation tech and AI stocks. Despite this recent run, he argued that the sector has room to continue its upward trajectory, pointing out that it was a multi-year laggard, trailing the S&P 500 by 20% in 2023 and roughly 5% in 2024. He described the current rotation as a combination of investors being scared of concentrated tech positions and happy with the valuations found in healthcare. Holz identified the clarity around drug pricing as a major positive catalyst for pharmaceutical and biotech companies. He highlighted biotech as the most interesting sub-sector for 2026, specifically focusing on the XBI (SPDR S&P Biotech ETF) as a proxy for small and mid-cap companies. He observes a historic shift in sentiment and noted that the XBI recently achieved a rare streak of 6 consecutive months of positive returns. He attributed this bullishness to several factors: the evaporation of negative drug-pricing narratives, the potential for lower interest rates to ease funding concerns, and the stabilization of the denominator of biotech stocks, meaning there are no longer an overwhelming number of new speculative assets to analyze. Additionally, he pointed to a surge in M&A activity, citing over 20 deals worth more than $500 million in 2025 alone.
Additionally, on December 19, Julie Biel, chief market strategist at Kayne Anderson Rudnick, appeared on CNBC’s ‘The Exchange’ to discuss where small caps may be headed in 2026. Biel argued that while the small-cap trade has legs for the coming year, the specific leadership within that category is set to change. She suggested that the market will soon shift its focus back to the importance of earnings growth and noted that the recent rally in the Russell index has been led by speculative areas like quantum computing, biotech companies, and firms with high debt, none of which currently produce earnings. Biel explained that while growth will likely accelerate across small caps, she expects the true winners to be high-quality businesses that have managed inflation, labor headwinds, and higher interest rate costs. She also pointed out that roughly 30 percent of trading volume is currently in stocks priced under $5, which she sees as a sign of young investors attempting to get rich quickly on highly speculative names.
That being said, we’re here with a list of the 10 best biotech penny stocks to buy according to analysts.
Our Methodology
We sifted through the Finviz stock screener to compile a list of biotech penny stocks under $5. We then selected 10 penny stocks that had an upside potential of over 65%. The stocks are ranked in ascending order of their upside potential. We have also added the hedge fund sentiment for each stock, as of Q3 2025, which was sourced from Insider Monkey’s database.
Note: All data was sourced on December 26.
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 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
10 Best Biotech Penny Stocks to Buy According to Analysts
10. Rezolute Inc. (NASDAQ:RZLT)
Share Price as of December 26: $2.67
Number of Hedge Fund Holders: 26
Average Upside Potential as of December 26: 68.54%
Rezolute Inc. (NASDAQ:RZLT) is one of the best biotech penny stocks to buy according to analysts. On December 11, Rezolute released topline results from its Phase 3 sunRIZE study evaluating ersodetug in patients with congenital hyperinsulinism/HI. The study, which included 63 participants aged 3 months to 45 years across more than a dozen countries, did not meet its primary or key secondary endpoints.
The primary endpoint of the study focused on the change in average weekly hypoglycemia events measured via self-monitored blood glucose. While the top dose of 10 mg/kg led to a ~45% reduction in these events, the result was not statistically significant compared to the 40% improvement observed in the placebo group. Similarly, the key secondary endpoint, the change in average daily percent time in hypoglycemia, showed a 25% reduction at the 10 mg/kg dose compared to a ~5% increase in the placebo arm, which also failed to reach statistical significance.
Despite missing the efficacy targets, the drug reached target concentrations across all age groups using a dosing regimen of 5 and 10 mg/kg every other week for three doses, followed by monthly administration. Safety observations were described as generally favorable. Two participants experienced serious hypersensitivity reactions that led to early discontinuation, though Rezolute Inc. (NASDAQ:RZLT) noted that the incidence of such reactions remains low compared to other biologic treatments. The most common adverse event was hypertrichosis (excessive hair growth), which was mild and self-limiting.
Rezolute Inc. (NASDAQ:RZLT) is a late-stage rare disease company that improves outcomes for individuals with hypoglycemia caused by hyperinsulinism in the US.
9. Prime Medicine Inc. (NASDAQ:PRME)
Share Price as of December 26: $3.50
Number of Hedge Fund Holders: 30
Average Upside Potential as of December 26: 71.43%
Prime Medicine Inc. (NASDAQ:PRME) is one of the best biotech penny stocks to buy according to analysts. On December 23, LifeSci Capital initiated coverage of Prime Medicine with an Outperform rating and $6 price target. The firm highlighted that Prime Medicine is advancing one-and-done gene editing treatments for conditions with high unmet medical needs, specifically Wilson’s disease, alpha-1 antitrypsin deficiency/AATD, and cystic fibrosis. LifeSci Capital expressed particular optimism regarding the commercial and clinical opportunities Prime Medicine is pursuing within the Wilson’s disease and AATD landscapes.
In other news, on December 7, Prime Medicine Inc. (NASDAQ:PRME) announced the publication of Phase 1/2 clinical data for its investigational therapy, PM359, in the New England Journal of Medicine/NEJM. PM359 is an autologous hematopoietic stem cell product designed to treat p47phox chronic granulomatous disease/CGD. These findings represent the first-in-human demonstration of Prime Editing’s safety and efficacy.
The trial results focused on two patients, one adult and one pediatric, both of whom had a history of CGD-defining complications, such as skin infections and CGD-associated colitis. Following treatment with PM359, both patients achieved rapid neutrophil and platelet engraftment. By Day 30, they reached 69% and 83% dihydrorhodamine-positive/DHR+ neutrophils, respectively. These figures significantly exceed the 20% threshold typically required for clinical benefit. Because the DHR activity remained stable over time, researchers believe the gene correction successfully occurred in the long-term repopulating hematopoietic stem cells within the bone marrow. Clinically, both participants have remained free of new CGD-related complications.
Prime Medicine Inc. (NASDAQ:PRME) is a biotechnology company that delivers genetic therapies to address the spectrum of diseases by deploying gene editing technology in the US.
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