In the final quarter of 2025, the investment landscape for small-cap equities presented both challenges and opportunities, as detailed in Polen Capital's "Polen 5Perspectives Small Growth Strategy" investor letter. Despite a modest overall return for small-cap stocks, the biotech sector, specifically GeneDx Holdings Corp. (WGS), emerged as a significant outperformer. GeneDx, a genomics firm focused on diagnosing rare genetic disorders, reported robust financial results driven by higher testing volumes and improved insurance reimbursements. This positive performance not only led to a stock surge but also prompted the company to revise its full-year guidance upwards, underscoring its strong market position and growth trajectory within the specialized genetic testing domain.
Polen Capital's Q4 2025 investor communication underscored a shifting focus within their small-cap growth strategy, reflected in the renaming of their fund to "Polen 5Perspectives Small Growth." This change emphasizes a multi-faceted analytical approach to investment. During this period, the fund significantly increased its exposure to the biotechnology sector, nearly doubling its allocation. This strategic move was influenced by several market dynamics, including fluctuating interest rates, an active mergers and acquisitions environment, and the burgeoning impact of artificial intelligence on healthcare. These factors collectively presented a compelling case for investment in biotech companies poised for innovation and growth.
The investor letter specifically highlighted GeneDx Holdings Corp. (NASDAQ:WGS) as a prominent example of a successful investment within their portfolio. GeneDx, a company at the forefront of genetic testing services, leverages advanced whole exome and genome sequencing technologies. Its primary objective is to facilitate the rapid and accurate diagnosis of rare genetic conditions, enabling healthcare providers to develop more personalized and effective treatment plans, ultimately enhancing patient outcomes. This focus on precision medicine and diagnostic innovation positions GeneDx as a crucial player in the evolving healthcare landscape.
GeneDx's financial performance in the fourth quarter of 2025 significantly exceeded market expectations. The company's strong results were attributed to a substantial year-over-year increase in the volume of high-value exome and genome tests conducted. Furthermore, GeneDx reported notable improvements in insurance reimbursement rates, which directly contributed to its enhanced profitability. These factors combined led to the company raising its full-year guidance, signaling confidence in its continued operational and financial strength. On February 23, 2026, GeneDx Holdings Corp. shares closed at $87.08, reflecting a market capitalization of $2.52 billion, despite a recent short-term decline in stock performance, showcasing its long-term potential.
The success of GeneDx Holdings Corp. illustrates the potential for specialized biotech firms to thrive by addressing critical healthcare needs through innovative diagnostic solutions. Polen Capital's increased confidence in the biotech sector, exemplified by their investment in GeneDx, highlights a broader recognition of the industry's growth potential driven by scientific advancements, strategic market conditions, and the integration of new technologies like AI. This strategic alignment aims to capitalize on structural tailwinds, including accelerated innovation, which provides disciplined investors with unique opportunities for value creation in the small-cap space.