3 Clinical Stage Biotech Stocks That Should Be on Your Watchlist in 2015

Source: Celgene Corp

Biotech stocks are notorious for their stratospheric gains and subterranean losses, especially clinical stage biotech stocks that develop promising, yet unproven, next-generation drugs. Those emerging biotech stocks may offer the potential for outsized returns, but they also carry significant risks. To help investors decide which of these clinical-stage companies may be worth considering in 2015, we asked three Motley Fools to tell us which emerging biotech stocks they're keeping their eyes on in 2015.

Brian Orelli: Technically, my pick,Exelixis, is a commercial stage company, since it has a drug on the market. But with just $17.8 million in Cometriq sales during the first nine months of the year, shares aren't going to rise or fall on sales of the medullary thyroid cancer drug.

In 2015 -- like pretty much every other year of the biotech's existence as a public company -- Exelixis will trade like a clinical-stage biotech. With a market cap around $270 million, it's certainly priced like one.

Exelixis' year will pivot around a clinical trial, dubbed METEOR, testing Cometriq in kidney cancer. The clinical trial completed enrollment last month, putting the trial on target to read out in the second quarter. If Cometriq can keep tumors from growing while keeping the patients alive for 7.5 months, compared to the expected five months for patients gettingNovartis' Afinitor, the trial will be deemed a success.

It's not hard to see the company being a multi-bagger on the news if the trial is successful. A several billion dollar market cap would be appropriate for a company with a successful oncology drug on the market.

Like any develop-stage biotech, Exelixis obviously comes with risks as well. Cometriq failed clinical trials in prostate cancer. If it follows the same path, there's a good chance it could trade for less than cash on hand -- expected to be around $200 million at the end of 2014 -- as investors leave the biotech for dead. Exelixis will still have rights to cobimetinib, which is being developed by its partner,Roche, but with a co-promotion agreement, Exelixis is on the hook for an equal share of the expenses as the drug launches, potentially draining limited reserves.

Exelixis is only appropriate for the most risk-tolerant investors -- and then, only a small amount of their portfolio -- but the potential rewards look good compared to the downside at the current valuation.

Cheryl Swanson:Next generation gene therapy pioneerBluebird Bio has been turning heads since its IPO in 2013. The stock, priced at $17 per share, soared almost 60% on the first day of trading. That set the pace for what became a very hot year for biotech IPOs after almost 10 years of drought.

Since then, Bluebird's investors have had little to complain about. As recently as Dec. 9, shares bumped up 72% to $84.28, based on great preliminary data for an experimental therapy for beta thalassemia.

So what's ahead? Like most baby biotechs, this is a stock strictly for investors with nerves of steel. Bluebird is far from taking any gene therapy through the FDA approval gauntlet, much less to market.

A partnership with heavyweightCelgene is a big plus. Celgene and Bluebird are mutually exploring CAR-Ts -- or chimeric antigen receptors -- aimed at turning T cells generated by the immune system into cancer killers.

Last June, Bluebird snagged tech outfitPregenenfor $156 million, a deal which should give Bluebird a powerfuledge in gene editing and cell signaling technologies. Now the big question is whether the good times will keep rolling for this company.

George Budwell:Five Prime Therapeutics is a clinical-stage biologics company that has my attention right now. The company's story revolves around its huge protein library composed of over 5,700 human extracellular proteins, which will serve as the basis for its therapeutic platform going forward. What's particularly exciting is that this tiny company is targeting therapeutic areas like immuno-oncology and inflammatory diseases with staggering commercial potential.

While it's still early days for Five Prime's clinical pipeline, Big Pharma has already shown significant interest in this platform, with bothGlaxoSmithKline andBristol-Myers Squibb signing lucrative research agreements with this small-cap biotech. Bristol, for instance, has agreed to explore the use of its PD-1 inhibitor, Opdivo, in combo with Five Prime's lead clinical candidate, FPA008, across six different cancers.

Looking ahead, Five Prime's first-in-class protein library gives it myriad shots on goal to develop a major new therapy at some point, and perhaps, makes it a compelling takeover candidate as well. With over two years of cash in the bank and milestone payments starting to roll in from its collaborations, Five Prime is definitely worth a closer look, in my opinion.

The article 3 Clinical Stage Biotech Stocks That Should Be on Your Watchlist in 2015 originally appeared on Fool.com.

Brian Orelli has no position in any stocks mentioned. Cheryl Swanson owns shares of Celgene. George Budwell has no position in any stocks mentioned. The Motley Fool recommends Celgene and Exelixis. 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.

Copyright 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.