Small-cap stocks can be outstanding growth vehicles for the buy-and-hold crowd. On balance, stocks with market caps below $2 billion have trounced the broader markets over the past two decades. The downside is that small-cap stocks tend to be on the volatile side, and there's also a far greater chance of outright failure when it comes to this risky group of equities. 

Which small-cap stocks should growth-oriented investors consider adding to their portfolios this month? Catalyst Pharmaceuticals (CPRX 0.14%), EyePoint Pharmaceuticals (EYPT 7.31%), and Geron (GERN 2.17%) are three up-and-coming biotechs that might be worth buying right now. Here's a rundown of the key facts and figures for each company. 

An index finger preparing to press a red buy button on a keyboard.

Image source: Getty Images.

Catalyst: A rebound is coming

Catalyst is a high-risk, high-reward rare-disease play. The company markets a controversial medicine, Firdapse, indicated for a debilitating neuromusclar disorder known as Lambert-Eaton myasthenic syndrome (LEMS). In a nutshell, Catalyst's decision to price Firdapse on par with other high-priced rare-disease treatments drew a ton of flack from critics because an older medicine -- 3,4-DAP -- was already being administered for free under a compassionate-use program.

The Food and Drug Administration, in kind, saw fit to approve 3,4-DAP (brand name: Ruzurgi) for pediatric patients (Firdapse is approved for adult use) only a few months after Firdapse's commercial launch. Catalyst's shares have thus come under immense pressure of late because of this key competitive threat. The biotech's shares, for instance, dropped by more than 17% over the past two weeks.

Catalyst's stock, however, could be gearing up for a major reversal for three reasons:

  1. The biotech is scheduled to release its third-quarter earnings in early November. A strong Q3 should go a long way toward quieting naysayers.
  2. Wall Street hasn't issued any major downward revisions regarding the company's projected top-line performance for Q3 or for the whole of 2019 in recent weeks. So analysts don't seem to be overly concerned about Ruzurgi's approval.
  3. Firdapse's pivotal trials for congenital myasthenic syndromes and MuSK-MG are both on track to produce top-line data soon. While nothing is for certain when it comes to clinical trials, there's a better-than-average chance that Firdapse will hit the mark in both of these ongoing studies. 

With these points in mind, it might be a good idea to take advantage of this recent weakness in Catalyst's shares. 

EyePoint: A dirt cheap growth stock

EyePoint, as its name spells out, is an emerging eye care specialist. Its stock warrants a look right now thanks to two major commercial launches earlier this year. Specifically, the company launched the chronic non-infectious uveitis treatment Yutiq, as well as the long-lasting postoperative ocular inflammation medicine Dexycu in first quarter of 2019.

The big deal is that these two novel eye care products are expected to haul in $72.1 million next year. If this line holds, EyePoint's shares would turn out to be trading a less than 2.5 times next year's sales. That's an incredibly cheap valuation for a commercial-stage biotech, especially one with two new products on the market. 

Another reason to consider buying this small-cap eye care specialist is for its potential as a buyout candidate. Bausch Health Companies already has a commercial partnership with EyePoint, but there's a solid rationale for the duo to take this relationship one step further through a full-on buyout.

In short, it's no secret that Bausch is actively hunting for low-cost acquisitions that could rapidly accelerate its turnaround. EyePoint checks that box in a big way due to its tiny market cap of $178 million and multiproduct eye care portfolio. Bottom line: EyePoint could become a red-hot takeover candidate soon if Yutiq and Dexycu live up to expectations sales-wise.  

Geron: A lottery ticket

Geron is a cancer specialist with one product in its pipeline: imetelstat. Imetelstat is currently in a late-stage trial as a treatment for patients with a rare blood disorder known as lower-risk myelodysplastic syndromes. The company expects to this all-important study to produce top-line data by mid-2022. So, this small-cap stock could take a few years to pay off. 

Having said that, Geron announced earlier this week that the FDA granted Fast Track Designation for imetelstat's other potential indication -- intermediate-2 or high-risk myelofibrosis (MF). The backstory is that imetelstat's mid-stage MF data didn't appear to be strong enough to warrant further development.

However, the FDA clearly hasn't shut the door on this high-value indication. Geron, for its part, seems to be pursuing a conditional approval for imetelstat in MF. It's an extreme long shot but there's a slim chance that the drug could get the green light from the FDA late next year or perhaps in 2021 for MF. 

The bottom line is that Geron's stock is either going to zero or it will end up soaring into the stratosphere -- all depending on imetelstat's fate. Thus, this small-cap biotech qualifies as a straight-up lottery ticket. That means that only the most aggressive of investors should seriously consider buying this ultra-risky biotech this month.