Small-cap biotech stocks can be attractive long-term investments, but they also carry significant risks. 

Biotech companies, particularly those with market capitalizations of less than $2 billion, frequently trade at low valuations compared to their future potential. A successful drug approval or positive clinical trial outcome can send a stock skyrocketing.

Wall Street analysts are optimistic about the prospects of these two rapidly evolving biotech companies: Ardelyx (ARDX) and Tscan Therapeutics (TCRX). Let’s find out why these biotech stocks have received a “Strong Buy” rating.

Strong Buy Stock #1: Ardelyx

Ardelyx, valued at $947 million, is a biopharmaceutical company focused on developing novel therapies for gastrointestinal and cardiorenal diseases. With two commercially approved products in the U.S., the company has progressed from a development-stage biotech to a commercial-stage business. 

ARDX stock is down 22% year to date, while the S&P 500 Index ($SPX) is down 0.45%. Nonetheless, Wall Street expects the stock to rebound this year.

Ardelyx specializes in targeted treatments for gastrointestinal and kidney disorders. Its main products are IBSRELA (tenapanor), which is approved to treat irritable bowel syndrome with constipation (IBS-C), and XPHOZAH (tenapanor), which is used to treat hyperphosphatemia in patients with chronic kidney disease on dialysis. These products have seen significant growth, with IBSRELA’s net sales increasing by 57% year-over-year in the first quarter to $44 million. In 2025, IBSRELA will be in its third full year on the market. XPHOZAH sales also increased by 55%, reaching $23.4 million.

Total revenue was $74.1 million, up 61%. Despite exceptional revenue growth, Ardelyx’s bottom line remains in the red red. The company reported a net loss of $0.17 per share, up from $0.11 in the year-ago quarter, and missed consensus estimates. Despite revenue growth, earnings misses and continued losses have caused a drop in stock price. 

CEO Mike Raab stated, “Looking ahead to the next quarter and the remainder of 2025, we remain sharply focused on the strategic priorities fueling our momentum: accelerating commercial growth for IBSRELA, deepening the adoption and impact of XPHOZAH, building a pipeline of innovative therapies, and maintaining a disciplined financial performance." Ardelyx had a strong balance sheet at the end of the quarter, with $214 million in cash, cash equivalents, and investments.

Analysts expect Ardelyx’s revenue to increase by 9.8% in 2025, followed by 34.6% in 2026. The company could also post a profit of $0.10 per share in 2026. Ardelyx offers a compelling opportunity for biopharmaceutical investors. While profitability remains uncertain, the company’s product growth and positive analyst sentiment indicate potential for long-term gains. 

The company’s product sales growth has earned it a "Strong Buy” rating on Wall Street. Of the 11 analysts covering ARDX stock, nine have rated it a “Strong Buy” while one rates it a “Moderate Buy” and one rates it a “Hold.” The average target price of $10.80 indicates that the stock has 174% upside potential. Furthermore, with a high target price of $15, the stock has the potential to rise by 280% from current levels.

Growth Stock #2: TScan Therapeutics

Valued at $81.5 million, TScan Therapeutics is a clinical-stage biotechnology company working on T cell receptor (TCR)-engineered T cell therapies aimed at treating various cancers. 

TScan stock has fallen nearly 54% year-to-date, underperforming the broader market.  Despite the stock’s volatility, TScan’s innovative approach and robust pipeline have garnered attention from analysts.

TScan’s lead candidate, TSC-101, is being tested in the ALLOHA Phase 1 trial for patients with acute myeloid leukemia (AML), acute lymphoblastic leukemia (ALL), and myelodysplastic syndrome (MDS) who are undergoing allogeneic hematopoietic cell transplantation (HCT). The therapy aims to eliminate residual disease and prevent relapse after transplantation. Depending on regulatory feedback, the company intends to launch a registration trial for TSC-101 in the second half of 2025. Additionally, TScan anticipates filing an investigational new drug (IND) application for TSC-102-A0301 in the second half of 2025.

As an early stage biotechnology company, TScan generates no product revenue. However, research activities in collaboration with Amgen (AMGN) generated $2.2 million in net revenue in the first quarter. 

Heavy investments in R&D to advance its pipeline increased to $29.8 million in the quarter. This resulted in a net loss of $34.1 million in the first quarter, compared to $30.1 million the prior-year quarter. At the end of the quarter, it had $251.7 million in cash, cash equivalents, and marketable securities, which it expects to cover its current operating plans until the first quarter of 2027.

Investing in clinical-stage biotech stocks such as TScan involves risk. The success of its therapies is dependent on the results of current and future clinical trials, regulatory approvals, and the ability to effectively commercialize its products. Furthermore, the company’s financial sustainability is dependent on its ability to manage R&D costs and secure additional funding as needed. 
As a result, while Tscan is an intriguing opportunity with significant upside potential, investors should weigh the benefits and risks before making an investment decision. 

Overall, Wall Street analysts rate TCRX stock a “Strong Buy.” Of the eight analysts covering the stock, seven rate it a “Strong Buy,” while one recommends a “Moderate Buy.”

The stock’s average analyst target price of $9 suggests upside potential of 552% over the next 12 months. The high price target estimate stands at $12 which suggests the stock can climb as much as 769% from current levels.