If you're looking for stocks that have explosive growth potential, small-cap biotechs might be right up your alley. Many of these biotechs don't have approved products on the market yet. Any good news for their pipeline candidates usually translates to significant share price gains.

Three top small-cap biotech stocks for aggressive investors right now are Cara Therapeutics (CARA -2.80%), Editas Medicine (EDIT -4.81%), and Genfit (GNFT -1.31%). Here's what makes these stocks stand out.

Scientist holding a test tube with biotech icons in the foreground

Image source: Getty Images.

1. Cara Therapeutics

Investors itching to buy a biotech stock that's potentially poised for a big pop in the near future might especially like Cara Therapeutics. The biotech's market cap currently stands at close to $775 million. Wall Street analysts think that Cara's valuation could jump 31% over the next 12 months.

The main draw for Cara is its lead drug candidate, Korsuva. Cara expects to announce results later this year from a phase 3 study of an intravenous (IV) formulation of the drug in treating chronic kidney disease-associated pruritis (CKD-aP) in patients on hemodialysis.

If the late-stage CKD-aP study for Korsuva goes well, Cara could be on the way to annual sales of more than $500 million. There currently are no FDA-approved treatments for CKD-aP. The company also has a big partner, Vifor Fresenius Medical Care Renal Pharma, that has rights to commercialize Korsuva outside of the U.S., Japan, and South Korea. In addition, Fresenius Medical Care, the world's largest dialysis provider, plans to promote Korsuva in all of its U.S. dialysis clinics.  

Cara's pipeline includes an oral version of Korsuva that's in a phase 2 clinical study for treating CKD patients who aren't on dialysis. The company is also evaluating an oral version of the drug in a phase 1 study targeting the treatment of chronic liver disease-associated pruritis (CLD-aP).

2. Editas Medicine

It will probably take a while for Editas Medicine to get a product on the market. But if and when it does, the biotech should be a big winner. Editas' market cap of close to $1.3 billion reflects investors' tremendous expectations.

Editas is a leader in developing CRISPR gene-editing therapies. The biotech's lead candidate, EDIT-101, will begin phase 1 clinical testing this year in treating Leber congenital amaurosis type 10 (LCA10), the leading cause of genetic blindness. When the phase 1 study begins, EDIT-101 will become the first CRISPR therapy administered to patients in vivo, or inside the body. 

Big drugmaker Allergan was so impressed with the potential for EDIT-101 that it exercised its options in 2018 to develop and commercialize the CRISPR therapy for treating LCA10. Editas thinks that the approach used in LCA10 will lend itself to treating other rare genetic eye diseases also, starting with Usher syndrome type 2A (USH2A).

Editas' technology has also attracted another major partner. Celgene is collaborating with the biotech on using CRISPR gene editing for engineering immune cells to fight cancer. In addition, Editas Medicine's preclinical pipeline includes promising gene-editing candidates for treating rare blood disorders sickle cell disease (SCD) and beta-thalassemia.

3. Genfit

French biotech Genfit's lead candidate, elafibranor, could become one of the first drugs ever approved to treat non-alcoholic steatohepatitis (NASH). Genfit hasn't received nearly as much attention as other biotechs developing NASH drugs, but that could be changing now that the company has listed its shares on the Nasdaq stock exchange. 

There's a lot to like about Genfit. Its market cap is less than $930 million. That's relatively inexpensive compared to several other small biotechs with promising NASH drugs in development. 

Intercept Pharmaceuticals will be the first to launch a NASH drug next year if Ocaliva wins approval. However, Genfit might not be too far behind. The biotech expects to submit for approval of elafibranor in 2020.

Elafibranor is the only NASH drug so far to have demonstrated efficacy on NASH resolution without worsening of fibrosis, improvement of patients' lipid profiles, improvement of metabolic profiles, and tolerability. That could position Genfit for success in what could become an enormous NASH market. The biotech also has a promising NASH diagnostic test that it hopes to market first as a laboratory-developed test this year before submitting for regulatory approval in 2020.

Not for everyone

Cara Therapeutics, Editas Medicine, and Genfit have the potential to make investors a lot of money. But these small-cap biotech stocks aren't for everyone.

All three biotechs still face significant risks. There's no guarantee that their products will be successful in clinical studies or ultimately win regulatory approval. None of the companies are profitable yet, either. That means it's quite possible that Cara, Editas, and Genfit could have to raise additional capital through issuing new shares, a move that would dilute the value of existing shares.

Every type of investment involves taking on some risk in the hopes of obtaining solid returns. Small-cap biotechs can sometimes deliver very good returns, but they have higher levels of risk than many stocks do. Only aggressive investors who can tolerate these risks should consider buying Cara, Editas, or Genfit.