In this article, we will look at the 10 Best Small Cap Biotech Stocks to Buy According to Hedge Funds.

On February 16, Franklin Equity said the biotechnology industry has entered 2026 on a firmer footing following an extended period of market uncertainty in the prior year, noting that market attention is now shifting back toward underlying fundamentals.

It explained that by late last year, several headwinds had eased: Certain proposed pharmaceutical-related tariffs were delayed or narrowed, “most-favored-nation” (MFN) pricing proposals were effectively confined to targeted Medicaid reforms, and investors gained better visibility into trade and reimbursement policy paths.

In light of this, Franklin Equity said the backdrop entering 2026 is more stable, allowing investors to refocus on biotechnology’s fundamentals, scientific progress, and long-term growth drivers. It added:

“While macroeconomic, pricing, and regulatory risks remain, greater clarity around policy and capital-market conditions is allowing investors to refocus on fundamentals and long-term value creation.”

It added that scientific innovation continues to underpin the sector’s growth potential, with meaningful advances across therapeutic modalities and disease areas. However, it noted that capital discipline and structural pressures are driving increased dispersion, elevating the importance of execution, balance-sheet strength, and clinical differentiation.

Franklin Equity emphasized that biotechnology innovation is accelerating, driven by advances in therapeutic development and enabling technologies. It said:

“We have seen significant progress in gene and cell therapies, radiopharmaceuticals, antibody-drug conjugates (ADCs), RNA-based approaches and other next-generation biologics, expanding the range of treatable diseases.

High demand areas such as oncology, neurology, obesity, rare diseases and cardiovascular medicine remain central. Oncology pipelines increasingly feature precision strategies, including ADCs, radioligand therapies, and engineered immune approaches, designed to boost efficacy while limiting side effects. In neurology and psychiatry, deeper biological insights are feeding more promising late-stage programs after years of limited progress.”

With this said, let’s take a look at the 10 Best Small-Cap Biotech Stocks to Buy According to Hedge Funds.

Our Methodology

To compile our list, we used Yahoo Finance’s “high growth companies” screen in the biotechnology industry to identify stocks with high 3-month average volume, and we limited our final selection to companies with small market capitalizations or below $2 billion. From this pool, we selected the 10 stocks most widely owned by hedge funds, based on Q4 2025 filings from Insider Monkey’s database. These names were then ranked by the number of hedge funds holding positions in them.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research shows 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 498.7% since May 2014, beating its benchmark by 303 percentage points (see more details here).

Note: All pricing data is as of market close on April 17, 2026.

10. Vir Biotechnology, Inc. (NASDAQ:VIR)

Market Cap: $1.72 billion

Number of Hedge Fund Holders: 30

Vir Biotechnology, Inc. (NASDAQ:VIR) is one of the best small-cap biotech stocks to buy according to hedge funds. The stock’s price grew 91.62% from a year ago, while it registered an 80.98% increase year-to-date. On April 16, Vir Biotechnology announced the closing of its global collaboration and licensing agreement with Astellas following the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The collaboration aims to accelerate the development of VIR-5500, a prostate-specific membrane antigen (PSMA)-targeted, PRO-XTEN dual-masked T-cell engager (TCE) for the treatment of metastatic prostate cancer.

Upon closing of the partnership, Vir Biotechnology said it received a $240 million upfront payment and a $75 million equity investment at a price of $10.36 per share. The company will also receive a near-term $20 million milestone payment, will split U.S. profit/loss equally with Astellas (50/50), and is eligible to receive up to an additional $1.37 billion in development, regulatory, and sales milestones, along with tiered, double-digit royalties on ex-U.S. net sales. Under the terms of Vir Biotechnology’s licensing agreement with Sanofi, a portion of certain collaboration proceeds will be shared with the latter.

Vir Biotechnology, Inc.(NASDAQ:VIR) is a clinical-stage biopharmaceutical company focused on powering the immune system to transform lives by discovering and developing medicines for serious infectious diseases and cancer. Its clinical stage portfolio includes programs for chronic hepatitis delta and multiple PRO-XTEN dual-masked T-cell engagers across validated targets in solid tumor indications.

9. Taysha Gene Therapies, Inc. (NASDAQ:TSHA)

Market Cap: $1.85 billion

Number of Hedge Fund Holders: 32

Taysha Gene Therapies, Inc. (NASDAQ:TSHA) is one of the best small-cap biotech stocks to buy according to hedge funds. The stock is up 343.45% from its price a year ago and 22.48% year to date. On April 15, Needham reiterated its buy rating for Taysha Gene Therapies with a price target of $12.

Earlier on April 6, Canaccord Genuity also reiterated its buy rating for Taysha Gene Therapies, raising its price target to $17 from $14.

On April 3, Taysha Gene Therapies announced that the Compensation Committee of its Board of Directors granted four new employees, in the aggregate, restricted stock units (RSUs) representing 300,000 shares of the company’s common stock and an option to purchase 92,400 shares of the company’s common stock in connection with their employment. The RSUs and stock options were granted under the Taysha Gene Therapies, Inc. 2023 Inducement Plan as an inducement material to the individuals entering employment with Taysha in accordance with Nasdaq Listing Rule 5635(c)(4).

Taysha Gene Therapies (NASDAQ:TSHA) is a clinical-stage biotechnology company focused on advancing adeno-associated virus (AAV)-based gene therapies for severe monogenic diseases of the central nervous system. Its lead clinical program, TSHA-102, is in development for Rett syndrome, a rare neurodevelopmental disorder with no approved disease-modifying therapies that address the genetic root cause of the disease.