We recently published a list of the 13 Best Biotech Penny Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Mereo BioPharma Group (NASDAQ:MREO) stands against other biotech penny stocks.

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.

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).

Mereo BioPharma Group (NASDAQ:MREO)

Share Price as of April 14: $1.95

Number of Hedge Fund Holders: 30

Mereo BioPharma Group (NASDAQ:MREO) develops and commercializes therapeutics for the treatment of oncology and rare diseases. It develops Etigilimab (MPH-313), which is an antibody T-cell immunoreceptor with Ig and ITIM domains. The company is also developing Navicixizumab (OMP-305B83), Acumapimod (BCT-197), a p38 MAP kinase inhibitor, and Leflutrozole (BGS-649).

Mereo is also focused on setrusumab (UX143), which is an investigational and fully human monoclonal antibody that is being developed for osteogenesis imperfecta (OI). Its action mechanism involves inhibiting sclerostin, which is a protein that negatively regulates bone formation. The intended effect of setrusumab is to increase bone density and reduce fractures in patients with OI.

Mereo’s partner Ultragenyx is conducting two Phase 3 studies: one is Orbit in patients aged 5-25, with a second interim analysis in mid-2025 and a potential final analysis in Q4 2025. The other is Cosmic in patients aged 2 to under 7. Positive results could lead to US and EU regulatory filings. The partnership includes ~$245 million in potential milestone payments and royalties to Mereo on Ultragenyx’s sales. Mereo BioPharma Group (NASDAQ:MREO) is preparing for a potential European launch of setrusumab.

Overall, MREO ranks 7th on our list of the best biotech penny stocks to buy according to hedge funds. While we acknowledge the growth potential of MREO, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than MREO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.