Penny stocks, defined as equities with share prices under $5, are ultra-risky investing vehicles. Companies with super-low share prices are often in financial peril, have a bad habit of excessively diluting shareholders, or (more plainly) their products simply don't sell very well. Healthcare penny stocks, however, can fall under a completely different umbrella than the typical low-priced equity.

Some healthcare companies, such as developmental or early commercial-stage biotechs, can go through a rough patch where their share prices are depressed simply because investors doubt their ability to bring a product to market, or to gain market share against an entrenched competitor. At the same time, these types of small biopharmas are also generally in need of large sums of capital to run costly trials, hire a sales force, and the like, resulting in regular bouts of shareholder dilution. Large capital raises, in turn, can have devastating consequences on a company's share price, at least in the short term. 

A plant growing inside a jar filled with coins.

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The upside is that some of these smaller pharma companies can and do strike gold with their lead product candidate, causing their share prices to rocket higher in the blink of an eye. In fact, it's no secret that many of the best-performing equities on an annual basis are small- to mid-cap drugmakers. 

Which biotech penny stocks might be gearing up for a monstrous run soon? Leap Therapeutics (LPTX -3.19%) and Pieris Pharmaceuticals (PIRS 1.46%) are two low-priced healthcare equities with the potential to deliver eye-popping returns for investors in the not-so-distant future. Here's an overview of the core value proposition of each stock.   

Leap Therapeutics: A growth story with legs

Leap Therapeutics is a small-cap cancer treatment company. The company's stock has shot up this year following a successful midstage trial update for its lead product candidate, the anti-Dickkopf-1 (DKK1) antibody or DKN-01 for short, in combination with BeiGene's (BGNE -5.13%) anti-PD-1 antibody tislelizumab in patients with gastric or gastroesophageal junction cancer.

The two companies have a commercialization agreement in place for DKN-01 in Asia (excluding Japan), Australia, and New Zealand. Leap, however, owns the drug's exclusive commercial rights for the rest of the world. It is presently trialing DKN-01 for a variety of other solid tumor indications, including hepatobiliary, gynecologic, and prostate cancer. Each of these indications could generate hundreds of millions in sales for the company. 

What's particularly interesting about this tiny drugmaker is that it appears to have a viable oncology asset. What's more, the biotech recently raised a significant amount of capital to increase its cash runway. Investors, in turn, shouldn't have to worry about the company repeatedly tapping the public markets for capital anytime soon.

The big picture is that Leap appears to be headed for a buyout. BeiGene has been working closely with Leap on DKN-01's development, and the dynamic duo appear headed for a merger within the next 12 months or so, assuming this drug continues to show promise in the clinic. The combination of BeiGene's immunotherapy tislelizumab and Leap's DKN-01, after all, exhibited an impressive response rate in first-line patients with gastric or gastroesophageal junction cancer. That's not the type of asset that partners generally let out of their grasp.  

Pieris Pharmaceuticals: An ultra-risky bet on an entirely new class of medications

Pieris Pharmaceuticals is an oddball in the world of biotech. Instead of licensing drug candidates from academia or other pharma companies, the company has developed its own entirely new class of therapies called Anticalins, which are proteins that are much smaller than your typical antibody therapeutics. As a result, these compounds have the potential to offer far greater tissue penetration, and they can be delivered via non-injectable mechanisms such as inhalation. Pieris' tech is so intriguing that the biotech has already signed partnership agreements with pharma heavyweights such as AstraZenecaSeagen, and Roche

What's the risk? No one knows for sure if these novel proteins will perform as expected within their target indications, or if they will show an acceptable safety profile in a large late-stage trial. That's why Pieris' market cap is currently a mere $313 million at the time this was written, despite interest from multiple big pharmas in their drug development platform.

Moreover, the company's most advanced candidate -- a drug being evaluated with AstraZeneca for moderate to severe asthma -- remains in the fairly early stages of development.

What's the upside? Novel medications fail on the regular. Potential investors should keep that fact squarely in mind with this stock. But there is an outside chance that this largely unknown drugmaker could become one of the best-performing stocks of the current decade if this approach works. Therefore, this small-cap biotech stock could indeed be worth buying before more data become available next year. That said, this is an ultra-risky stock, meaning that investors shouldn't buy more than they can afford to lose.