In this article, we will take a look at some of the small-cap drug manufacturing stocks that are highly favored by hedge funds. On February 16, Franklin Templeton shared its outlook on the biotechnology sector heading into 2026. After a prolonged stretch of uncertainty, the picture is starting to look a lot clearer for investors. For much of the recent past, policy noise around drug pricing, tariffs, and reimbursement rules kept investors on edge.
By late 2025, however, several of those headwinds had eased. Certain proposed pharma tariffs were delayed or scaled back, and pricing reform proposals were largely confined to targeted Medicaid changes. That shift in backdrop has allowed investors to refocus on what actually matters: the science, the pipelines, and the long-term fundamentals.
And on that front, biotech remains compelling. Innovation across new treatment areas and disease categories continues to drive the sector’s long-term growth potential. That said, not every company will benefit equally. Capital discipline and structural pressures are creating a real divide between companies with strong balance sheets and clear development strategies and those without.
Franklin Templeton’s message is straightforward: this is not a market where buying the whole sector makes sense. Being selective is everything right now.
So which drug manufacturing stocks are worth watching in 2026? Here’s a look at our 7 Best Small-Cap Drug Manufacturing Stocks to Buy According to Hedge Funds.
Copyright: kadmy / 123RF Stock Photo
Our Methodology
To identify relevant stocks for this article, we screened U.S.-listed drug manufacturers with market capitalizations between $300 million and $2 billion. Also, we shortlisted only stocks with at least 20% upside potential according to consensus as of the March 26 closing.
Next, we identified the number of hedge funds that held positions in these stocks by the end of the fourth quarter of 2025. Finally, we selected 7 stocks with the highest number of hedge funds holding stakes and ranked them in ascending order.
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 498.7% since May 2014, beating its benchmark by 303 percentage points (see more details here).
7. BioAge Labs Inc. (NASDAQ:BIOA)
BioAge Labs Inc. (NASDAQ:BIOA) is one of the 7 best small-cap drug manufacturing stocks to buy according to hedge funds.
On March 10, Citi maintained a Buy rating on BioAge Labs Inc.. The firm significantly increased its price target from $15 to $52, citing a compelling outlook as the company approaches proof-of-concept data for BGE-102.
Citi also sees significant commercial potential for the therapy across multiple indications, including peak U.S. sales of $9.5B for atherosclerotic cardiovascular disease and $2B for diabetic macular edema, supporting a more optimistic view of the company’s long-term growth trajectory.
On February 25, Oppenheimer began coverage of BioAge Labs Inc. with a $60 price target and an Outperform rating. The firm is quite positive about the company’s lead compound, BGE-102, which can inhibit the NLRP3 pathway. This has recently received a lot of attention due to the potential of the compound in the reduction of cardiovascular risk, especially after the positive Phase 2 results from Ventyx Biosciences.
Oppenheimer points out the critical differentiation of the company’s compound in comparison to other adjacent NLRP3 and Interleukin compounds.
BioAge Labs Inc. is engaged in developing therapeutic product candidates for metabolic diseases. Its product portfolio includes an NLRP3 inhibitor in Phase 1 of clinical trial and BGE-102. It is also working on APJ agonists for obesity.
6. Aquestive Therapeutics Inc. (NASDAQ:AQST)
Aquestive Therapeutics Inc. (NASDAQ:AQST) is one of the 7 best small-cap drug manufacturing stocks to buy according to hedge funds.
On March 5, Alliance Global reduced the firm’s price target on Aquestive Therapeutics Inc. from $12 to $9. The firm maintained its Buy rating on the shares. The move follows the company’s fourth quarter earnings call, with the firm highlighting the planned NDA resubmission for Anaphylm in quarter 3 2026 after receiving a Complete Response Letter from the FDA.
Alliance Global also outlined a detailed valuation across the company’s pipeline and assets, including contributions from Anaphylm, Libervant, and its base business, supporting its updated view on the shares.
On March 5, Aquestive Therapeutics Inc. announced its revenue for the fourth quarter of $13.02 million, which was lower than the consensus estimates of $13.28 million. According to President and CEO Daniel Barber, Aquestive is well-positioned to advance Anaphylm, the first and only oral epinephrine rescue medication, toward FDA approval for patients worldwide in 2026.
The company is focused on rapidly addressing the human-focused deficiencies identified by the FDA in its recent Complete Response Letter. The commercial infrastructure is intact and transferable to the new timeline as the allergy market continues to grow, and the patient preference for the innovation that Anaphylm brings to the allergy community remains strong.
Aquestive Therapeutics Inc. works as a pharmaceutical company both in the US and around the world. It offers a wide range of products, which include Libervant, Suboxone, EMYLIF, ONDIF, SYMPAZAN, KYNMOBI, and AZSTARYS. Anaphylm and AQST-108 are its proprietary pipeline items. Additionally, it has also created Adrenaverse and PharmFilm technology.
5. Ironwood Pharmaceuticals Inc. (NASDAQ:IRWD)
Ironwood Pharmaceuticals Inc. (NASDAQ:IRWD) is one of the 7 best small-cap drug manufacturing stocks to buy according to hedge funds.
On February 26, Citizens analyst Jason Butler maintained an Outperform rating on Ironwood Pharmaceuticals Inc.. The firm increased its price target from $8 to $10. Citizens noted that the company’s fourth-quarter results were in line with guidance and highlighted the reaffirmed 2026 outlook, including adjusted EBITDA of over $300M.
It added that LINZESS-related headwinds appear to have eased, positioning the company to generate meaningful cash flow to support debt obligations and fund future growth initiatives.
On February 25, Ironwood Pharmaceuticals Inc. announced guidance for fiscal year 2026 adjusted EBITDA to be at least $300 million. The company stated that it is focused on maximizing LINZESS and advancing apraglutide while also sustaining profits and cash flows.
In 2026, the company expects higher net sales for LIZNESS in the U.S. and expects a disciplined approach towards expense control to generate more than $300 million in adjusted EBITDA, which will consequently support the continued development of apraglutide and will enable debt reduction to further enhance the company’s financial strength.
The company also sees apraglutide as an opportunity to redefine the standard of how patients receive care with SBS-IF, and is looking forward to the initiation of sites for the confirmatory Phase 3 clinical trial called STARS-2 in the second quarter of this year.
Ironwood Pharmaceuticals Inc. is involved in the development and commercialization of therapeutics for gastrointestinal (GI) and rare diseases. It also sells linaclotide under the brand names LINZESS and CONSTELLA. Additionally, it is also working on the development of IW-3300 and Apraglutide.
4. Pacira BioSciences Inc. (NASDAQ:PCRX)
Pacira BioSciences Inc. (NASDAQ:PCRX) is one of the 7 best small-cap drug manufacturing stocks to buy according to hedge funds.
On March 2, Pacira BioSciences Inc. presented data from its IGOR registry at the American Academy of Orthopedic Surgeons (AAOS) 2026 Annual Meeting. The company highlighted that Exparel was associated with improved pain outcomes, reduced opioid use, and shorter hospital stays compared to standard treatments.
The company also noted that iovera demonstrated longer-lasting pain relief and functional improvement, with benefits extending up to 12 months. The findings support the company’s growing presence in post-surgical pain management solutions.
On February 12, Pacira BioSciences Inc. brought to attention the new survey results that have been released by the Voices for Non-Opioid Choices coalition. The results reflect the response to the first year of implementation of the Non-Opioids Prevent Addiction, NOPAIN, Act. This was done by conducting a national awareness campaign, trials, and usage survey of nearly 750 hospital and health system directors of pharmacy, medical directors, surgeons, and anaesthesiologists within ambulatory surgery centres.
The results of this survey show the beginning impact of the NOPAIN Act. This act was implemented on January 1, 2025, and the results concluded that 85 percent of facility representatives surveyed were aware of the legislation. In addition, more than half of the facilities surveyed have implemented changes to increase the utilization of qualifying non-opioid options. Over 80 percent of those surveyed have seen a reduction in opioid prescribing for immediate post-surgery and discharge due to the legislation.
Pacira BioSciences Inc. is focused on the development and marketing of non-opioid pain management and regenerative health solutions to medical practitioners. Its portfolio includes EXPAREL, ZILRETTA, PCRX-201, NOCITA, and a handheld cryoanalgesia device.
3. Bausch Health Companies Inc. (NYSE:BHC)
Bausch Health Companies Inc. (NYSE:BHC) is one of the 7 best small-cap drug manufacturing stocks to buy according to hedge funds.
On February 25, Glen Santangelo from Barclays reduced the price target on Bausch Health Companies Inc. from $8 to $7. The analyst reaffirmed an Equal Weight rating on the stock, which yields an adjusted upside potential of almost 37% despite the downward revision.
Santangelo’s revision came after the company’s fourth quarter report. The analyst reiterated his stance on the company experiencing difficulties due to the loss of exclusivity in 2028.
Back on February 19, CEO Thomas Appio reflected on the company’s fourth quarter report, marking yet another period of year-on-year growth in key financial metrics. He attributed such performance to the company’s commercial and operational strength. Shedding light on the potential across the aesthetic treatments market, Appio stated:
“Our newly acquired full-service aesthetics distribution business in China expands our geographical reach, provides direct access to a large customer base, and allows us to better address market demand for aesthetic treatments, strengthening our global aesthetics franchise and our commitment to excellence in China. As we move into 2026, we remain committed to commercial and operational excellence, along with the proactive pursuit of initiatives that expand our portfolio and enhance our long-term outlook.”
Bausch Health Companies Inc. engages in the development and sale of a range of items for the healthcare industry. The five segments of the company specialise in different areas, which include hepatology, neurology, dermatology, gastroenterology, generic pharmaceuticals, over-the-counter (OTC) items, aesthetic medical devices, and eye health.
2. Collegium Pharmaceutical Inc. (NASDAQ:COLL)
Collegium Pharmaceutical Inc. (NASDAQ:COLL) is one of the 7 best small-cap drug manufacturing stocks to buy according to hedge funds.
On March 24, Vikram Karnani, President and CEO at Collegium Pharmaceutical Inc., shared his views on the company’s recent agreement with Corium Therapeutics Holdings for the acquisition of AZSTARYS. The deal involves $650 million in cash payments, along with earn-out considerations that could reach $135 million.
Karnani emphasized that this transaction will enable the company to further diversify its topline, beyond the pain medicines category. He also highlighted that it will continue to contribute to the company’s revenue base through to the late 2030s, further strengthening Collegium’s presence within the ADHD space. Given the company’s existing operational and marketing capabilities within ADHD, this addition will lead to expanded margins and higher operating leverage.
On February 23, Boston Legacy FC named Collegium Pharmaceutical Inc. an official partner and announced a multi-year partnership with the company. Boston Legacy FC and Collegium are collaborating to make the club’s home games more comfortable and inclusive for fans.
Under this partnership, the Collegium Sensory Room at Gillette, Centreville, and White Stadium will be made available for all Boston Legacy FC home matches in 2027. The sensory room is a specific area designed to give fans and visitors a more peaceful and safer environment away from the intense visual and acoustic aspects experienced during the match, thus enhancing the experience of the visitors and making it more pleasurable and comfortable.
Collegium Pharmaceutical Inc. focuses on the development and commercialization of pain management medicines. It offers a wide range of products, which include Jornay PM, Belbuca, Xtampza ER, Nucynta ER, Nucynta IR, and Symproic.
1. Amylyx Pharmaceuticals Inc. (NASDAQ:AMLX)
Amylyx Pharmaceuticals Inc. (NASDAQ:AMLX) is one of the 7 best small-cap drug manufacturing stocks to buy according to hedge funds.
On March 24, Amylyx Pharmaceuticals Inc. stated that the final subject in the Phase 3 Lucidity clinical study of avexitide had been randomised and dosed. This 16-week multicentred, randomised, double-blind, placebo-controlled study examines the safety and effectiveness of avexitide in adults with PBH following Roux-en-Y gastric bypass surgery.
If participants finish the 16-week double-blind phase, the trial can be extended for an additional 32 weeks. 78 people have signed up for the trial, and the topline data readout is scheduled for the third quarter of 2026. Avexitide is expected to go on sale in 2027 if approved.
On March 4, H.C. Wainwright analyst Andrew Fein increased the firm’s price target on Amylyx Pharmaceuticals Inc. from $28 to $34. The firm maintained its Buy rating on the shares.
The move follows recent engagement with investors and experts, who expressed strong enthusiasm for the Phase 3 LUCIDITY trial. The firm also raised its probability of success estimate for the avexitide program, reflecting increased confidence in its potential.
Amylyx Pharmaceuticals Inc. focuses on the discovery and development of treatments for endocrine and neurodegenerative diseases. Its portfolio includes AMX0318, Avexitide, which is in phase 3 of clinical trial, AMX0035 in phase 2 and 2b/3 of clinical trial, and AMX0114 in Phase 1 of the clinical trial.
