Up to 840% upside: 10 smid-cap biotechs most popular with hedge funds

“If you had to pick a single industry that could be interesting to every hedge fund, it might be biotech,” Mergers & Inquisitions founder Brian DeChesare wrote in a blog post. Investments in biotechs can deliver huge gains – and huge losses – in short periods, while their stocks are often only weakly correlated with broader market trends, he noted.

Freedom Broker, on the request of Oninvest, looked at which small caps in the biotech space were most popular among hedge funds in the fourth quarter. The list includes 10 names.

Number of hedge funds holding shares: 123

Terns develops drugs for obesity and cancer. Its lead asset, TERN-701, is being tested in early-stage clinical trials in patients with chronic myeloid leukemia, a slow-growing blood cancer.

In late March, pharmaceutical giant Merck & Co., known outside of the U.S. and Canada as MSD, announced the acquisition of Terns for $6.7 billion, or $53.00 per share. That is a low price “considering the startlingly good data Terns put out for its chronic myeloid leukemia treatment, TERN-701,” William Blair analyst Andy Hsieh said, as cited by Investor’s Business Daily.

Terns shares have climbed more than 30% year to date and now trade near Merck’s offer price. The mid-cap stock has eight “hold” ratings from Wall Street analysts and one “buy.” The average target price is $53.00 per share, roughly in line with current trading levels.

Number of hedge funds holding shares: 75

Gossamer Bio is developing a treatment for pulmonary hypertension, a dangerous disease marked by high blood pressure in the arteries of the lungs. In February, the company said preliminary data showed its therapy failed to meet the planned target in a late-stage clinical trial. On the day of the announcement, February 23, the stock plunged 80% to $0.41 per share. The company later said it was assessing the results and expected to meet with the industry regulator, preliminarily in June, to discuss next steps.

Gossamer Bio shares have fallen almost 88% year to date to $0.39 per share. Wall Street is cautious on the stock’s prospects: five analysts recommend “hold,” three say “buy,” and one says “sell.” The average target price of $3.69 per share implies upside of about 840% versus the Thursday closing price.

Number of hedge funds holding shares: 69

Arvinas develops drugs targeting proteins linked to a number of diseases, including neurodegenerative disorders such as Parkinson’s disease and certain types of cancer. In August, the company submitted an application to the FDA for approval of its first drug – a breast cancer treatment it is developing with pharmaceutical giant Pfizer. The companies expect an FDA decision on June 5 and, if the therapy is approved, plan to out-license commercialization rights to a third party.

Arvinas shares have declined about 12% year to date. Ten Wall Street analysts recommend “buy,” eight say “hold,” and one says “sell.” The average target price is $14.88 per share, 42.8% above the last close.

Number of hedge funds holding shares: 67

Tango Therapeutics develops new cancer treatments that take into account genetic information in tumor cells. All of its programs remain at early stages of clinical trials, with a pivotal study for one of them – a pancreatic cancer treatment – scheduled to begin this year.

The company’s shares have surged 192% year to date and 1,660% over the last 12 months. Eleven Wall Street analysts rate the stock “buy,” while only one recommends “hold.” The average target price is $22.30 per share, implying 13.7% downside.

Number of hedge funds holding shares: 63

Kura Oncology develops cancer therapies. Its portfolio already includes one regulator-approved treatment – for adults with relapsed or refractory acute myeloid leukemia, an aggressive blood and bone marrow cancer with a specific genetic mutation. The FDA approved it on November 13, and it generated $2.1 million in net revenue over five weeks of sales, the company said.

The company’s shares have fallen almost 11% year to date but are up 44% over the last 12 months. Wall Street is positive on its prospects: the stock has 14 “buy” ratings from analysts versus only one “hold.” The average target price is $31.20 per share, implying 235% upside.

Number of hedge funds holding shares: 63

Day One Biopharmaceuticals develops and markets treatments for pediatric cancer. Its name comes from the term “The Day One Talk,” referring to the conversation doctors have with patients and their families about an initial cancer diagnosis and treatment plan.

In early March, French pharmaceutical company Servier announced the acquisition of Day One for about $2.5 billion, or $21.50 per share. The announcement sent the small cap's shares up nearly 66% in a single day, March 6, to $21.20 per share.

In the following days, at least four Wall Street analysts downgraded the stock to “hold.” Currently, all seven analysts covering the company recommend holding its shares, and the average target price matches the acquisition price, implying no upside.

Number of hedge funds holding shares: 63

Replimune Group focuses on developing oncology drugs. On April 10, the company said the FDA declined to grant accelerated approval for its first therapy – for advanced melanoma. The company disagreed with the decision, calling the process inefficient and a risk to innovation.

The news triggered a selloff the next trading day, April 13, with shares falling more than 64%. Year to date, the stock is down about 70%. Investment bank Jefferies on April 13 downgraded the stock from “buy” to “hold” and cut its target price from $13.00 per share to $2.00 per share, citing increased uncertainty around the company’s outlook.

Overall, four analysts recommend holding the biotech, three say “sell,” and only one recommends “buy.” The average target price is $2.20 per share, implying 22.8% downside.

Number of hedge funds holding shares: 61

Vir Biotechnology develops treatments for infectious diseases and cancer. In late February, the company told investors about a “seminal moment,” including a partnership with Japan’s Astellas Pharma worth up to $1.71 billion. The companies plan to jointly develop a prostate cancer treatment.

The news sent Vir shares up 28%, and several investment banks raised their target prices. The stock has gained 71.6% year to date. All 10 Wall Street analysts covering the company recommend “buy.” The average target price is $20.80 per share, implying nearly 100% upside.

Number of hedge funds holding shares: 61

Esperion Therapeutics develops and markets therapies for cardiovascular and rare diseases. For 2025, the company reported revenue growth of 21% to $403.1 million and a net loss of $22.7 million versus $51.7 million a year earlier. A week earlier, also in March, the company announced the acquisition of Corstasis Therapeutics, the maker of the only FDA-approved nasal spray for treating edema associated with congestive heart failure.

Following these developments, two Wall Street analysts – from Needham and Citizen – raised their target prices for the stock from $4.00 per share to $5.00 per share, implying 163% upside.

Overall, Esperion shares have six “buy” ratings from Wall Street analysts, one “hold,” and one “sell.” The average target price is $6.97 per share, 3.5 times the last closing price.

Number of hedge funds holding shares: 60

Regenxbio develops gene therapies based on AAV vectors (adeno-associated viral vectors). These are delivery systems derived from viruses that are used in gene therapy to transport healthy genes into cells. Initially, the company focused on licensing its NAV technology platform to other biotech firms. The platform was used to develop one of the most expensive drugs in the world, Zolgensma, for the treatment of spinal muscular atrophy, created by pharmaceutical giant Novartis.

Regenxbio is currently advancing several programs both independently and in partnership with other pharmaceutical companies: treatments for Duchenne muscular dystrophy, metabolic disorders – mucopolysaccharidosis types I and II (with Japan’s Nippon Shinyaku), and two severe retinal diseases (with AbbVie).

Regenxbio shares have fallen almost 37.5% year to date to $8.99 per share. However, Wall Street remains confident in the stock's prospects: the stock has 11 “buy” ratings from analysts versus only one “hold.” The average target price is $29.25 per share, 3 times the last closing price.