We recently published a list of the 12 Best Biotech Penny Stocks To Invest In Now. In this article, we are going to take a look at where Relay Therapeutics, Inc. (NASDAQ:RLAY) stands against the other best biotech penny stocks to invest in now.
Goldman Sachs has spotlighted an often-overlooked sector poised to benefit from lower borrowing costs: biotechnology stocks. In a recent note to clients, John Flood, Goldman’s Head of Americas Equities Sales Trading, highlighted biotech as an under-the-radar opportunity for those seeking to capitalize on the Fed’s rate cuts. Flood noted that biotechnology stocks are uniquely sensitive to changes in interest rates as they often rely on projected future profits and are heavily impacted by the cost of capital. With little or no current profitability but significant upside potential, if clinical trials succeed, these stocks have an “option-like structure” that makes them particularly responsive to interest rate movements.
The note also emphasized that biotech has recently seen improved fundamentals driven by positive clinical outcomes and a more favorable regulatory environment. Despite these tailwinds, biotech remains under-owned by hedge funds. According to Goldman’s data, the sector ranks in the 13th percentile in hedge fund long/short positioning over the past year and just the 4th percentile over the past five years.
Recent performance data supports Goldman’s outlook. The iShares Biotech ETF climbed 7.7% in Q3, outperforming the Nasdaq Biotech Index and more than doubling the S&P 500’s 3.2% gain over the same period. For investors anticipating a continued decline in bond yields, Goldman suggests biotechnology stocks may offer more attractive exposure compared to other rate-sensitive equity sectors, which are more dependent on broader economic growth trends.
READ ALSO: 12 Best Technology Penny Stocks To Buy According to Hedge Funds and 12 Best Energy Stocks To Invest In Now.
Biotech Innovations: Small Caps Lead the Way
In an interview with Yahoo Finance on October 30, Stacey Sears, Portfolio Manager at Emerald Advisers, provided a comprehensive overview of the current landscape and investment opportunities in small and emerging biotechnology companies.
Sears acknowledged that there has been a significant innovation in the healthcare industry, especially over the past 20 to 30 years, which was catalyzed after the decoding of the human genome in 2003, as it identified over 8,000 genetic diseases. This breakthrough provided a roadmap for researchers and scientists, leading to accelerated innovation in areas such as DNA and RNA editing and the development of treatments for orphan and rare diseases.
Sears noted that small and emerging biotechnology companies have been at the forefront of this innovation. In 2023, approximately two-thirds of all clinical trials were initiated by small and emerging biotechnology firms, and about 56% of new drug substances approved by regulatory bodies originated from these smaller companies.
Sears pointed out that the sector has been underperforming over the past couple of years. This underperformance is largely due to the inverse correlation between healthcare stocks and interest rates and yields. However, she noted that the sector is now starting to see a favorable shift. Clinical advancements have continued unabated, and the pipeline of new treatments and drugs remains robust. Large pharmaceutical companies are facing a patent cliff, estimated to be around $30 billion by the end of this decade as their drugs become generic. Small and emerging biotechnology companies are seen as key sources for filling this pipeline. This situation is creating a potential M&A tailwind, as larger companies look to acquire innovative smaller firms to bolster their drug pipelines.
The biotechnology sector presents a unique investment opportunity, driven by favorable interest rates, ongoing clinical advancements, and increased M&A activity. Small and emerging biotech firms, in particular, are poised to play a critical role in addressing unmet medical needs and fueling innovation in the healthcare space.
A chemist arranging containers of compounds, ready for the commercialization process.
Our Methodology
To compile our list of the 12 best biotech penny stocks to invest in now, we used Finviz and Yahoo stock screeners to find the 30 largest biotechnology companies trading below the price of $5 as of December 26. We then used Insider Monkey’s Hedge Fund database to rank 12 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Relay Therapeutics, Inc. (NASDAQ:RLAY)
Number of Hedge Fund Investors: 30
Stock Price as of December 26: $4.23
Relay Therapeutics, Inc. (NASDAQ:RLAY) is a biopharmaceutical company that leverages computational technology such as the 4D drug design, to develop precision medicines targeting protein motion. This innovative approach has enabled the discovery of therapies for cancers and other diseases. Relay Therapeutics, Inc. (NASDAQ:RLAY) collaborates with biopharmaceutical partners and researchers to accelerate the delivery of transformative treatments. The company’s pipeline includes several clinical and preclinical programs.
Relay Therapeutics, Inc.’s (NASDAQ:RLAY) core technology, the 4D drug Design Platform, stands at the forefront of computational and experimental methods to understand the dynamic movement of proteins. This approach allows the company to design drugs that are more selective and less prone to off-target effects. For instance, Relay Therapeutics, Inc. (NASDAQ:RLAY) is developing Rly-4008, an oral small molecule inhibitor of fibroblast growth factor receptor 2 (FGFR2), which has shown promising early results in clinical trials, including an 88% overall response rate (ORR) in the ReFocus trial. This early success has positioned the company to file for FDA approval in treating cholangiocarcinoma with FGFR2 alterations.
Relay Therapeutics, Inc. (NASDAQ:RLAY) is expanding its clinical trials for Rly-4008 and Rly-2608. For Rly-4008, the company is exploring additional indications and has received guidance from the FDA to file for a new drug application (NDA) in cholangiocarcinoma, followed by a tumor-agnostic supplemental application. Additionally, Relay Therapeutics, Inc. (NASDAQ:RLAY) is seeking commercial partnerships to leverage the commercialization of rly-4008.
Relay Therapeutics, Inc. (NASDAQ:RLAY) is also committed to expanding its pipeline through both internal development and strategic collaborations. The company is advancing Rly-2608, a mutant PI3Ka inhibitor, which has shown promising interim data in heavily pretreated patients with PI3Ka-mutations. Relay Therapeutics, Inc. (NASDAQ:RLAY) is also developing additional candidates, including Rly-1156, a selective and Potent inhibitor of the PI3Ka pathway.
Overall, RLAY ranks 2nd on our list of best biotech penny stocks to invest in now. While we acknowledge the potential of RLAY to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RLAY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.