Doubt has seized investors around the world. Economists are still determining the likely effects of the coronavirus pandemic on growth, employment, and industries ranging from auto insurance to animal health. That all suggests now is not a great time to invest in riskier assets, but investors with a long-term mindset might be able to step just outside their comfort zones given the circumstances. 

Take development-stage drug companies as one example. They're inherently risky in normal times, let alone when a pandemic is bringing many clinical trials to a halt. But the market volatility of the last month or so has reduced stock prices without much discrimination. That means even the most promising early-stage companies are trading at relatively attractive prices.

If investors are willing to stomach a little more risk and buy small-cap stocks, then they might want to take a closer look at Axsome Therapeutics (AXSM 1.36%) and Dicerna Pharmaceuticals (DRNA).

A scientist working at a lab bench.

Image source: Getty Images.

Can this company earn approval for two drugs soon?

Shares of Axsome Therapeutics gained 3,570% last year, easily making it one of the best-performing stocks of 2019. That incredible rise was made possible thanks to a combination of obscurity (the company boasted a market cap of $60 million in late 2018) and promising clinical results from its lead drug candidate. 

The company's prized asset, AXS-05, is now poised to earn marketing approval from the U.S. Food and Drug Administration (FDA) in treating major depressive disorder (MDD). The drug candidate earned the coveted Breakthrough Therapy designation in MDD and will have a New Drug Application (NDA) submitted in the fourth quarter of 2020. It's likely to earn marketing approval sometime in 2021. 

Investors were hoping the drug candidate could become an accessible, next-generation treatment for multiple types of depression, but those hopes just took a hit. AXS-05 failed to meet the primary endpoint in a phase 3 study in treatment-resistant depression (TRD) that compared the drug candidate to an active comparator over a six-week period. There were signs of numerical improvements, but they were not statistically significant -- the gold standard for clinical success. Axsome Therapeutics plans to plow ahead with additional phase 3 trials in TRD, although the asset's fate in the indication is uncertain at this time. 

Fortunately, the pipeline isn't entirely dependent on AXS-05 for commercial success. Axsome Therapeutics recently reported positive results from a phase 3 trial evaluating AXS-07 as a treatment for migraine. The company expects to file an NDA with regulators before the end of 2020, which creates the possibility for two drug approvals in 2021

The success of AXS-07 in treating migraines helps to offset some of the uncertainty for AXS-05 in TRD. Analysts think the pair of assets could enable combined peak annual sales of over $1 billion in the next 10 years in MDD and migraine alone. Considering Axsome Therapeutics is valued at only $2.5 billion today, investors with a long-term mindset might want to give this small-cap stock a closer look. 

A row of brightly colored paper airplanes ascending higher.

Image source: Getty Images.

Is this the most promising early-stage pharma on the market?

Dicerna Pharmaceuticals is developing a pipeline of drug candidates based on RNA interference (RNAi) technology. The technique can be used to silence disease-driving genes from rare genetic diseases, viral infections, and more. After encountering a fair share of development obstacles, RNAi research has been thrust back into the spotlight in the past year. 

Alnylam Pharmaceuticals (ALNY -1.08%) recently earned the first two approvals for RNAi-based drugs. Meanwhile, a new approach to safely and efficiently deliver RNAi drug payloads into liver cells has reignited interest in the gene-silencing technique. Alnylam Pharmaceuticals, Arrowhead Pharmaceuticals, and Dicerna Pharmaceuticals are each developing targeted RNAi drug candidates, although the latter might be the most compelling. 

In fact, Dicerna Pharmaceuticals might be one of the most intriguing development-stage drug companies accessible to investors. While the pipeline contains mostly early-stage assets, the risk profile is heavily diluted by an unparalleled lineup of drug development partners. 

The pre-commercial biotech is working with Roche on a treatment for chronic hepatitis B (CHB). Novo Nordisk has signed on to develop up to 30 drug candidates (yes, 30!) in liver-related cardiometabolic diseases. Eli Lilly is exploring the RNAi platform for up to eight cardiometabolic diseases, in addition to drug candidates for neurological diseases and pain disorders. Alexion Pharmaceuticals is developing four assets, while Boehringer Ingelheim is exploring yet another. 

Those deals represent over $5 billion in potential research and development revenue in the form of milestone payments, sales milestone payments, and royalties. But investors might find the latest partnership to be the most telling: Alnylam Pharmaceuticals. 

In early April, Alnylam Pharmaceuticals and Dicerna Pharmaceuticals agreed to collaborate to commercialize their competing drug candidates in alpha-1 antitrypsin (A1AT) deficiency. The duo will also share intellectual property to accelerate the development of their drug candidates in primary hyperoxaluria. Landing a partnership with the leading RNAi developer and the pioneer of the field is certainly a pretty big win for this small-cap biotech. 

While the coronavirus pandemic has halted many clinical trials and injected uncertainty into the plans of many development-stage drug companies, Dicerna Pharmaceuticals began March with $720 million in cash. At a market cap of just $1.5 billion and with plenty of support from industry leaders, the risk-reward equation could be favorable for investors with a long-term mindset.