3 Best Healthcare Stocks of 2017

Sextuple. No, it's not a risque term. Instead, sextuple was the minimum requirement for what a healthcare stock needed to do in 2017 to rank in the top three for best performance. That's right -- to be among the best healthcare stocks of the year, a company would have been required to multiply in value by at least sixfold.

Three, and only three, healthcare stocks achieved that lofty goal. Here's how Madrigal Pharmaceuticals (NASDAQ: MDGL), Marinus Pharmaceuticals (NASDAQ: MRNS), and XOMA Corporation (NASDAQ: XOMA) did it.

Madrigal Pharmaceuticals

Madrigal Pharmaceuticals stock surged 516% in 2017, landing it the No. 3 position among all healthcare stocks for the year. For Madrigal, success came in two phases.

First, the company announced good news on Sept. 19 from a couple of phase 2 studies of experimental drug MGL-3196 in treating heterozygous familial hypercholesterolemia (HeFH) and non-alcoholic steatohepatitis (NASH). The independent data-safety-monitoring board recommended that both studies move forward with no protocol changes. There was a bit of a delayed reaction, though, with Madrigal stock shooting up a few days later.

Madrigal's second big jump came on Dec. 6. The company reported that MGL-3196 met the primary endpoint of the phase 2 study in treating NASH. Seventy-five percent of patients taking a high dosage of MGL-3196 attained at least 30% liver fat reduction compared to only 18.4% of patients on placebo. These results were received enthusiastically by investors, since increasingly more people are affected by NASH, and the disease has no approved treatment yet.

Marinus Pharmaceuticals

While Madrigal more than sextupled in 2017, Marinus Pharmaceuticals' market cap increased by more than eight times. The biopharmaceutical company's share price soared 708%, thanks to good news for its one pipeline candidate, gamma-aminobutyric acid (GABA) modulator ganaxolone.

In June, the U.S. Food and Drug Administration (FDA) granted Orphan Drug Designation to ganaxolone in treating CDKL5 disorder, a rare genetic disorder caused by a mutation of the cyclin-dependent kinase-like 5 (CDKL5) gene. But Marinus had even better news on Sept. 11, when the company announced positive results from a phase 2 study of ganaxolone in treating CDKL5 disorder.

With success in the phase 2 study, Marinus declared CDKL5 disorder its lead pediatric orphan epilepsy program for ganaxolone. The company plans to begin a pivotal late-stage study in 2018. In addition, Marinus expects to report results from two other phase 2 studies evaluating ganaxolone in treating postpartum depression and refractory status epilepticus.

XOMA Corporation

The top healthcare stock of 2017, though, was XOMA. The biotech stock skyrocketed 744% higher last year. As of mid-August, XOMA was up by "only" 70% or so. But then came a string of positive developments for the tiny biotech.

On Aug. 25, XOMA announced that it had licensed commercial rights to anti-IL-1 beta antibody gevokizumab to Novartis (NYSE: NVS). In addition, the company granted rights to Novartis for its intellectual property covering the use of IL-1 beta targeting antibodies in the treatment of cardiovascular disease. The two agreements generated $31 million in upfront payments for XOMA, including a $5 million equity investment by Novartis.

Over the next few months, XOMA made more licensing deals, although they weren't as significant as the Novartis partnership. In October, the company announced separate non-exclusive license agreements with Tizona Therapeutics, Inc., Torch Biosciences, Inc., and LakePharma, for use of XOMA's phage display libraries for antibody discovery. And in December, XOMA licensed rights for XOMA 358, a fully human antibody that inhibits the effects of elevated insulin, to Rezolute.

Ready to repeat?

Will Madrigal, Marinus, and XOMA turn in repeat performances in 2018? Don't count on it.

Marinus and XOMA were tiny at the beginning of last year, with market caps below $30 million. Madrigal wasn't quite as small, but the company's early 2017 market cap was still less than $175 million. It's a lot more difficult to churn out gains of 500% or more when a stock starts off with a higher valuation.

However, any of these stocks could still perform impressively again this year. I wouldn't be surprised if Madrigal attracts attention from larger drugmakers hoping to add to their NASH pipelines. Marinus could get further help from its other phase 2 results for ganaxolone coming in 2018. And XOMA still has several other pipeline assets available for licensing. Of course, there are risks for each stock, as well. If there weren't risks, though, there wouldn't be the potential for more huge gains.

10 stocks we like better than XOMAWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and XOMA wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 2, 2018

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.