Investors are right to focus on potential Alzheimer's disease drugs because of the huge market, but Anavex Life Sciences Corp. (NASDAQ:AVXL) is an awfully long way from from the finish line with its lead candidate. Clinical-stage biotech stocks are inherently risky, but I'd like to walk you through some figures that show why Geron Corporation (NASDAQ:GERN) and its cancer drugs might make a better addition to your portfolio. If you'd like to stay within the Alzheimer's disease space, ACADIA Pharmaceuticals (NASDAQ:ACAD) also has a compelling opportunity to expand its lead drug into this underserved space and beyond.

Medical practitioner reviews X-rays with elderly patient.

Image source: Getty Images.

Both Geron and Acadia present risks, but both stocks have a better chance of providing market-beating gains over the long term than Anavex. Here's why.

Geron Pharmaceuticals: Advancing a contender

Anavex and Geron don't have a product to sell yet, but it looks like the latter has a much better chance of bringing its first clinical-stage drug into the commercial arena. Geron's lead candidate, imetelstat, appears to have an important advantage over the leading treatment (Jakafi) for a rare form of blood cancer known as myelofibrosis, a disorder marked by overactive blood cell production in bone marrow.

In 2011, Jakafi from Incyte earned approval to treat myelofibrosis based on observed spleen size reductions. Enlarged spleens are a key myelofibrosis symptom, but the therapy's lackluster improvement in 3-year survival rates to 70% over 61% observed in a group receiving a placebo suggests a strong contender could quickly earn a significant share of the available patient population.

In a trial that enrolled 33 myelofibrosis patients, Geron's imetelstat generated a clinical response defined in part by an observed improvement on bone marrow damage among about 21% of patients. Furthermore, 12% experienced a complete remission defined by complete reversal of damage.

By contrast, Anavex's lead candidate's ability to slow progression of cognitive decline among Alzheimer's patients is questionable at best. So far the only clinical-efficacy data for the drug consists of a less-than-impressive change in cognitive ability test scores from baseline. Without a control group for comparison, observations to data are hardly worth getting excited about. Observed responses in patients treated with Geron's imetelstat, though, is the sort of data worth getting excited about.

Another advantage Geron has over Anavex is a deep-pocketed partner ready to fund a trial large enough to support an application. Anavex wrapped up a mid-stage study with its lead candidate, but hasn't begun a larger, more expensive late-stage trial yet. The company is open to collaboration to continue its development, but hasn't announced one yet. 

Geron, on the other hand, is far less likely to delay development due to a lack of resources. It's partner, Johnson & Johnson, is awaiting more data this year from imetelstat. If mid-stage trial results fall in line with previous observations, J&J will fund a late-stage study, and possibly commercialization activities, cutting Geron checks for milestones and royalties along the way. As Geron's market cap is just $335.8 million at recent prices, success for imetelstat could lead to market-crushing gains over the long run.

Acadia Pharmaceuticals: An important expansion

If you're looking for a biotech with potential upside and a commercial-stage product, you'll want to consider the purveyor of the first drug specifically approved to treat Parkinson's disease psychosis. An estimated 40% of an estimated 1 million U.S. Parkinson's disease patients suffer delusions and hallucinations, and treating these symptoms is a huge burden on families and healthcare budgets.

Acadia's Nuplazid generated $5.2 million in sales during its first full quarter on pharmacy shelves, and is expected to climb much higher with it having the Parkinson's disease indication essentially to itself. Acadia's recent market cap of around $3.85 billion suggests a great deal of success for the drug is already priced in, but a possible expansion to the much larger Alzheimer's disease (AD) indication could send the stock higher still.

So how is Acadia faring in its quest for expanding Nuplazid's label? Well, Acadia's shares slid recently after top-line data barely squeaked by with a statistically significant reduction in psychosis test scores among AD patients at six weeks. While the slim success is concerning, it's also important to note Nuplazid wasn't associated with impaired-cognition side effects. Sadly, anti-psychotics currently available for Alzheimer's patients often exacerbate the disease's main symptom, cognitive decline, which cold give Nuplazid an advantage..

If trials for AD psychosis don't clear a path for expansion to this enormous population, an ongoing mid-stage trial for AD agitation could do the job. AD agitation affects perhaps half of America's 5.4 million AD patients, and often leads to costly nursing-home placement. Given the lack of available treatment options for AD psychosis or agitation, Nuplazid's lack of adverse cognitive side effects could make it popular enough to generate more than $2 billion in annual sales with an expansion to such a large population.

Medical practitioner speaking with elderly man.

Image source: Getty Images.

Beyond Parkinson's and Alzheimer's, Acadia also has a chance to expand Nuplazid to the large schizophrenia indication. Schizophrenia affects about 1% of the the adult population in the U.S., and perhaps 30% suffer an inadequate response to existing antipsychotics. The company is running a late-stage trial that could support an application for the medicine to become the first treatment for this group as well.

Further out, a mid-stage trial will shed more light on Nuplazid's potential as an additional treatment for a majority of America's 16 million adults with major depressive disorder inadequately managed by their existing therapies.

Of course, if Nuplazid remains locked into Parkinson's disease without a chance of expanding to any of these additional indications, investors would probably suffer losses. Unlike Anavex, though, Acadia has already proved it can advance a drug from clinical to commercial stage. Label-expansion approvals are far from certain, but several trials that could lead to key expansions under way give the stock a much better chance of beating the broad market in the long run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.