Peter Marks’s departure from the FDA has left innovators concerned regarding the current state of the review program at the FDA. Marks had impacts on two key areas. First the vaccine approvals and the subsequent resurgence of new vaccines over the past two decades, and then the establishment of the cell and gene therapy field that he’s credited for. He was involved in developing policies aimed at optimizing the process of bringing several innovative products to the market. Following his resignation, a substantial number of other departures are also anticipated, which implies upcoming destabilization at the FDA for its existing expertise and processes.
Stifel head of biotech research Paul Matteis suggests looking for biotech names not dependent on the FDA while this sector uncertainty lasts. On March 31, Paul Matteis appeared on CNBC’s ‘The Exchange’ and noted that biotech investors, particularly those who are focused on developmental-stage companies, are now facing risk. These include scientific, clinical trials, commercial, patent, competition, and regulatory risks. Hence, investors now need to be more selective about their stock selections. Previously, the FDA has been a stabilizing force for the biotech sector and is known for accelerating approvals in areas such as rare diseases and biomarkers. But recent developments have introduced unpredictability.
Matteis highlighted that there could be short-term delays in drug approvals due to personnel changes at the FDA, such as the recent departure of the head of the Center for Drug Evaluation and Research (CEDAR). Investors may even need to reevaluate agreements between companies and the FDA regarding drug approvals. While this doesn’t make biotech investments completely unsustainable, it does shift the focus toward companies with more predictable growth prospects. This could point to specifically commercial-stage firms or those less reliant on FDA consistency. Talking about vaccine stocks particularly, Matteis pointed out that as much as Peter Marks influenced vaccine-related decisions, he also impacted broader areas like gene therapies and oncology. He fostered innovation through programs like breakthrough therapy designations and initiatives that were aimed at streamlining approvals.
Investors are now gravitating toward companies with de-risked profiles that are less dependent on FDA flexibility. Matteis noted that the companies relatively outperforming right now are those that have their success tied to commercial launches rather than regulatory decisions. That being said, we’re here with a list of the 13 best biotech penny stocks to buy according to hedge funds amid this uncertainty.
A biotechnologist in a laboratory wearing a lab coat, preparing samples for a clinical trial.
Our Methodology
We sifted through ETFs, stock screeners, and financial media reports to compile a list of the top biotech penny stocks that were trading below $5 as of April 14. We then selected the 13 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 1000 elite money managers.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
13 Best Biotech Penny Stocks to Buy According to Hedge Funds
13. Sana Biotechnology Inc. (NASDAQ:SANA)
Share Price as of April 14: $1.76
Number of Hedge Fund Holders: 24
Sana Biotechnology Inc. (NASDAQ:SANA) utilizes engineered cells as medicines and develops ex vivo and in vivo cell engineering platforms for different therapeutic areas, such as type 1 diabetes, B cell-mediated autoimmune diseases, and oncology. It has an option and license agreement with Beam Therapeutics Inc. for the use of Beam’s proprietary CRISPR Cas12b nuclease editing technology.
In Q4 2024, Sana reported positive preliminary 12-week clinical results from its UP421 study. This study involves hypoimmune-modified pancreatic islet cells and demonstrated stable C-peptide production. C-peptide is a biomarker for insulin production. It indicates that the transplanted cells are functioning as intended and don’t require immunosuppression.
Sana is investing in its Type 1 Diabetes program, with a focus on developing SC451. Preclinical data for SC451 has shown 15-month durability of glycemic control in a mouse model, and no observed histologic abnormalities. The goal is for SC451 to be a single-treatment therapy for restoring normal blood glucose levels in patients with type 1 diabetes. Sana Biotechnology Inc.’s (NASDAQ:SANA) anticipates sharing additional data from this program in 2025 and aims to file an IND application as early as 2026.
12. Erasca Inc. (NASDAQ:ERAS)
Share Price as of April 14: $1.24
Number of Hedge Fund Holders: 26
Erasca Inc. (NASDAQ:ERAS) is a clinical-stage precision oncology company that discovers, develops, and commercializes therapies for patients with RAS/MAPK pathway-driven cancers. It has license agreements with Novartis, Katmai Pharmaceuticals Inc., and NiKang Therapeutics Inc. to develop and commercialize several different compounds.
Erasca’s RAS-targeting franchise encompasses two drug candidates that were acquired earlier in May 2024. One of these is the ERAS-0015, which is a potential best-in-class pan-RAS molecular glue for targeting a range of RAS mutations. The other one is ERAS-4001, which is a potential first-in-class pan-KRAS inhibitor designed to inhibit KRAS particularly. KRAS is a frequently mutated protein in cancer.
The potential patient population for ERAS-0015 is ~2.7 million people diagnosed annually worldwide with RAS-mutant tumors. ERAS-4001 could address more than 2.2 million of those with KRAS-mutant tumors. In 2024, Erasca Inc. (NASDAQ:ERAS) recorded $22.5 million in in-process R&D expenses for the upfront payments associated with licensing ERAS-0015 and ERAS-4001. The company anticipates submitting IND applications to regulatory authorities in 2025 to begin clinical trials for both candidates.