3 Small-Cap Biotech Stocks That Could Double in 2017

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This has mostly been a year to forget for biotech investors. It began with a precipitous January drop, and the recovery has seemingly lagged almost every other industry. Through the end of Thanksgiving week, the broad-based S&P 500 was up about 8% year to date, whereas the SPDR S&P Biotech ETF was down more than 5% -- a double-digit underperformance.

However, this underperformance could lead growth and value investors to snatch up biotech stocks in 2017.

Most biotech companies aren't making money at the moment, which means value investors will likely gravitate toward the larger, more profitable, and more stable names like Amgenor Celgene. But the greatest reward (and risk) potential often lies with mostly developmental-stage small-cap biotech stocks. Let's have a look at three that could possibly double in 2017 if the cards -- and the clinical data -- fall in their favor.

Geron Corporation

One entirely clinical-stage drug developer that's bound to be volatile in 2017 is Geron (NASDAQ: GERN). The key driver for the company will be top-line data from two studies -- IMbark and IMerge -- due out during the second quarter.

Geron's bread-and-butter drug is imetelstat, which is focused on treating a rare form of blood cancer known as myelofibrosis, as well as myelodysplastic syndromes. What's most intriguing about imetelstat is what it did during early-stage studies in myelofibrosis. Namely, the experimental drug generated partial and complete responses in patients, which is something that had never been witnessed in any clinical trial. In fact, the only approved drug for the myelofibrosis indication, Incyte's Jakafi, a JAK-inhibitor, is solely designed to manage the symptoms associated with myelofibrosis, such as an enlarged spleen and anemia. It does nothing to slow the progression of the disease itself. Thus, if imetelstat finds traction in larger-scale studies, and it's proven safe, it could wind up eating Jakafi's revenue stream for lunch.

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The blockbuster potential of imetelstat wound up drawing the attention of Johnson & Johnson (NYSE: JNJ) in November 2014, with J&J betting nearly $1 billion on its future. Geron netted $35 million up front and could be privy to $900 million in developmental, regulatory, and sales-based milestones, on top of royalties, based on imetelstat's progress. For Johnson & Johnson's part, it could easily wind up with another blockbuster in its portfolio if the drug is approved in one or both of its indications.

Right now, Wall Street and investors are eagerly awaiting midstage data from the IMbark (myelofibrosis) and IMerge (myelodysplastic syndromes) studies. In September, Geron and J&J announced that the lower-dose imetelstat in the IMbark study would be discontinued but that they would wait for 24-week data to evaluate the high dosage of 9.4 mg/kg. Likewise, the early portion of the phase 2/3 IMerge study was fully enrolled and expected to yield data in Q2 2017.

With little in Geron's pipeline beyond imetelstat, the next year will make or break the company. If everything turns out well in clinical studies, Geron's valuation could double.

Portola Pharmaceuticals Inc.

For growth investors looking for an intriguing gamble in 2017, Portola Pharmaceuticals (NASDAQ: PTLA) might be your pony.

The lead experimental drug in Portola's stable is betrixaban, an extended-duration, once-daily oral Factor Xa inhibitor designed to prevent blood coagulation that could lead to venous thromboembolism (VTE) in acute medically ill patients. At the International Society on Thrombosis and Haemostatis Scientific and Standardization Committee meeting in May, Portola announced the full results of its phase 3 APEX study of betrixaban. However, investors have known since March that APEX had missed the mark of statistical significance. The big question at the time was by how much.

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The May data release, which came out via the New England Journal of Medicine, showed a drug that appeared to provide a clear benefit in two larger exploratory cohort studies and just marginally missed the mark of statistical significance (p-value = 0.054) by its normal definition of a p-value of 0.05 or less.

Of the more than 7,500 patients that underwent randomization in the APEX study, major bleeding events were almost even between the betrixaban (0.7%) arm and the current standard of care (0.6%) cohort, and the overall patient population witnessed a drop in VTE to 5.3% in the betrixaban arm compared to 7% for the placebo. What remains to be seen is whether or not the Food and Drug Administration will accept data that suggests it got very, very close, but missed the traditional mark of significance, without having to run an entirely new trial.

If approved, betrixaban would become the first anticoagulant for hospital to home prevention of VTE, and it could represent a major step up in convenience for patients. With the drug bearing the Fast Track designation, it clearly could become a game-changer. But, once again, it will all depend on the FDA's interpretation of statistical significance. Should everything go Portola's way in 2017, then its stock could well double in value.

CoLucid Pharmaceuticals, Inc.

Another intriguing name to keep your eye on in the small-cap biotech arena in 2017 is CoLucid Pharmaceuticals (NASDAQ: CLCD), a developer of small-molecule drugs for the acute treatment of migraine headaches in adults.

What might turn some investors off of CoLucid is the fact that its share price has more than quadrupled since August. But this move comes on the heels of news in September that one of three pivotal phase 3 trials involving oral lasmiditan had met both its primary and secondary efficacy endpoints.

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In the SAMURAI study, the 100 mg and 200 mg doses led to 28.2% and 32.2% of patients being migraine headache-free at two hours, respectively,compared to just 15.3% for the placebo. Furthermore, the secondary endpoint showed that a respective 40.9% and 40.7% of patients taking the 100 mg and 200 mg doses were free of the most bothersome symptoms associated with migraine headaches, which compares favorably to just 29.5% of the placebo patients. The drug was also deemed well-tolerated.

The next study up for CoLucid and lasmiditan is SPARTAN, a phase 3 evaluation modeled after SAMURAI that will examine three doses (50 mg, 100 mg, and 200 mg) versus a placebo at the two-hour mark. The double-blind study is expected to hold more than 2,200 participants across 140 sites in the U.S., U.K., and Germany, and it's being conducted under a Special Protocol Agreement with the FDA. Most importantly, it's expected to yield results around mid-2017. If SPARTAN succeeds, nothing would seemingly stand in the way of CoLucid filing a new drug application for what's been a tricky ailment to treat.

If approved, CoLucid's key drug could border on being a blockbuster (i.e., $1 billion in annual sales), which would make its current valuation of just under $700 million seem like a bargain. With a cash runway that should presumably get it through 2018, CoLucid could still offer plenty of upside for growth investors in 2017.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

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