Ino Graphic

Image Source: Inovio Pharmaceuticals.

Sure, the future for the DNA immunotherapies under development by Inovio Pharmaceuticals (NASDAQ: INO) seems very promising. But after a year when Inovio's shares dropped nearly 28%, some investors might be looking for alternative places to put their money. Which small-cap biotech stocks potentially offer more bang for the buck? Here are two good possibilities to consider.

Idera Pharmaceuticals (NASDAQ: IDRA)
First, the bad news about Idera: Its stock sank by almost 37% in 2015 -- even worse than Inovio. However, the small biotech has several things going for it that could bring good news this year.

More results from a phase 1/2 study of toll-like receptor (TLR) 7, 8, and 9 antagonist IMO-8400 in treating Waldenstrom's Macroglobulinemia are expected later in 2016. Idera reported positive news in December from this study, with IMO-8400 showing clinical activity and good tolerability in the patient population. Results from another study focusing on IMO-8400 as a potential treatment for diffuse large B-cell lymphoma are expected in June.

Idera also has another TLR agonist, IMO-2125, that's in a phase 1/2 clinical study in combination with Yervoy for treatment of metastatic melanoma. Data from this study is expected this year.

In a nutshell, TLR agonists either turn on or turn off the body's immune system depending on what disease is being treated. Several indications are good candidates for this approach, including autoimmune diseases such as dermatomyositis and Duchenne muscular dystrophy.

Idera won't be able to reap significant financial rewards from any of its pipeline drugs in the near future. However, at least one analyst, Cowen's Simos Simeonidis, thinks that IMO-8400 could be a huge winner down the road, with peak annual sales potential of over $1 billion. In the meantime, Idera's cash stockpile of nearly $95 million as of the end of the third quarter in 2015 should sustain the biotech through 2017.

Cara Therapeutics (NASDAQ: CARA)
Unlike Inovio and Idera, Cara Therapeutics enjoyed a great year in 2015. Shares soared 59%. The biotech should have good prospects this year also.

The intravenous version of the company's lead product, CR845, is currently in a phase 3 study for treating acute post-operative pain. Cara announced positive results from a phase 2 study of intravenous CR845 in treating uremic pruritus in July. More good news from a phase 2a study of the oral version of the drug targeting treatment of osteoarthritis was reported in December.Cara is also something of a marijuana stock play, although the company's only cannabinoid, CR701, is still in pre-clinical development. 

What catalysts could drive Cara's stock even higher in 2016? The biotech should finish an interim assessment of the phase 3 clinical trial of IV CR845 in the first half of the year and follow on with a second phase 3 study. Cara also plans to move forward with a phase 2b study of oral CR845.

While Cara could chalk up a few more milestone payments for its drugs in 2016, no regulatory approval is in sight this year. Ultimate approvals for CR845 for multiple indications over the next few years, though, would be huge for Cara Therapeutics. There are an estimated 400,000 patients in the U.S. alone who require dialysis. Around half of them need treatment for uremic pruritus. And acute pain is already a multi-billion dollar market with plenty of room for better treatments.

Like Idera, Cara seems well-positioned to move forward until it can commercialize its lead drug candidate. The biotech reported over $111 million in cash and cash equivalents at the end of third quarter -- enough to fund operations for several years. 

Forget about Inovio?
Both Idera and Cara could easily take off in 2016. However, should Inovio shareholders really forget about the biotech? That's probably a bit too harsh of a reaction to Inovio's dismal performance last year.

Inovio's phase 3 trial of cervical dysplasia drug VGX-3100 starts this year. AstraZeneca (NYSE: AZN) plans to conduct studies of Inovio's cancer drug INO-3112 in combination with its own immunotherapies. Inovio also has an early stage trial of hepatitis B drug INO-1800 under way. Any or all of these efforts could pay off. I expect good things from VGX-3100 in particular.I'm not alone in that view. Industry observers estimate the drug could generate peak annual sales topping $500 million. 

While there's no way to know how well any stock will perform over the next year, I like the prospects for Idera and Cara with their potential catalysts -- although they come with considerable risk. Over the longer term, however, each of these small biotechs (including Inovio) holds the potential for success. Investors looking for high-risk, high-reward opportunities would do well to remember all three. 

 

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.