Investors walked away from shares of Minerva Neurosciences (NASDAQ:NERV) and Axsome Therapeutics (NASDAQ:AXSM) last month. OK, it was more of a sprint. The stock prices of the pair have fallen 33% and 29%, respectively, since the beginning of September, but each tumbled for a different reason. 

Considering the companies have big plans for their late-stage drug candidates, investors with a long-term mindset might be wondering if the recent share price declines present a buying opportunity. Is either one of these small-cap pharmaceutical stocks a buy?

Two drawings of human heads with one brain represented by organized blocks and the other represented by chaotic blocks.

Image source: Getty Images.

The latest clinical trial risk: cyberattacks

Minerva Neurosciences is a clinical-stage pharma company developing three mid- to late-stage drug candidates as potential treatments for central nervous system disorders. 

MIN-202 is being studied in a phase 2 trial as an adjunctive treatment for individuals with major depressive disorder (MDD) who don't respond adequately to selective serotonin reuptake inhibitors (SSRIs). MIN-117 is being developed as a treatment for moderate to severe MDD, with top-line results from a phase 2b trial expected before the end of 2019.

Its lead drug candidate, MIN-101 (roluperidone), is being investigated in a phase 3 study as a treatment for negative symptoms in schizophrenia. Top-line results for the first 12 weeks of the 52-week study were originally expected before the end of 2019, but a cyberattack on the contractor responsible for patient enrollment has pushed that timeline back to the first half of 2020. 

The delay means the second part of the phase 3 trial -- a 40-week follow-up -- might not have data available until early 2021. That could sting for a couple of reasons. First, MIN-101 was estimated to have peak annual sales of $900 million or more before the end of the next decade. That's a significant bounty for a small-cap, clinical-stage pharma. 

Second, Minerva Neurosciences had $69 million in cash at the end of June and burned through $20 million in the first six months of 2019. It now seems likely that the company will have to raise cash without the benefit of potentially successful MIN-101 results in hand, which could make fundraising more difficult or more dilutive.

A market cap of less than $200 million suggests investors aren't very optimistic about the small-cap pharma stock. It would be best for investors to wait for top-line results from the MIN-117 phase 2b trial later this year and those from the MIN-101 phase 3 trial in early 2020 before considering a position in this risky stock. In fact, it may help to watch upcoming clinical results from Axsome Therapeutics, which has a promising treatment for MDD in development. 

A scientist in the lab with a disappointed look on his face.

Image source: Getty Images.

Cooling down ahead of major events

Axsome Therapeutics sported a market valuation of $79 million as recently as January, but promising clinical results have launched it out of obscurity. The company's market cap briefly eclipsed $1 billion in September before investors started taking gains off the table ahead of a make-or-break finish to the year

The small-cap pharma expects to announce top-line results from three phase 3 clinical trials and one phase 2 clinical trial before the end of 2019. The most closely watched drug candidate in the company's pipeline is AXS-05, which will have results from two late-stage studies -- in MDD and treatment-resistant depression (TRD) -- in the coming months. Solid results from a phase 2 trial investigating the asset are what put Axsome Therapeutics on the map in early January. Now investors are hoping for another big win. 

The company also expects to announce top-line results for a phase 3 study evaluating AXS-07 in migraine and a phase 2 study looking at AXS-12 in narcolepsy before the end of 2019. There are even more data readouts expected in the first half of 2020.

Despite all of the upcoming events, shares of Axsome Therapeutics have cratered in the last month for no clear reason. It simply seems that investors started to price in the risk of failure for the business, or the downsides of success. For instance, the company exited June with just $54 million in cash, which suggests it will need to raise a significant sum of money to successfully commercialize any of its drug candidates. 

That said, Axsome's current $600 million market cap would be a bargain if earlier results for AXS-05 hold up in the ongoing late-stage trials for MDD and TRD. Investors with a long-term mindset and an above-average appetite for risk may consider starting or adding to a position.