Not every stock that falls on tough times is worth buying in portfolios, but sometimes, catalysts can spark shareholder-friendly rallies, and in those situations, it can make sense. For example, risk-tolerant investors might want to consider picking up shares in the beaten-up biotech stocks Zogenix (NASDAQ:ZGNX), Insys Therapeutics (NASDAQ:INSY), and Keryx Pharmaceuticals (NASDAQ:KERX). All three of these stocks are former highfliers, and each has catalysts that could help them regain some of their former glory.

Breathing new life into an old drug

Zogenix's share price has been more than cut in half from its peak in 2014, but a lot of those losses could be gained back if data that's expected this fall on its lead drug candidate is good.

Scientists work together developing new medicines in a lab.


In September, management expects to roll out results from a phase 3 trial evaluating ZX008 as a possible treatment for rare forms of childhood epilepsy. 

ZX008 is a low dose of fenfluramine, the "fen" part of the failed obesity drug phen-fen. That drug was removed from the market in 1997 after it was discovered that it can increase cardiac risks.

While fenfluramine has a checkered past, there's reason to think it could find new life as an epilepsy treatment. Past studies have shown that in low doses, it can reduce the number of seizures experienced with tough-to-treat versions of the disease, including Dravet syndrome and Lennox-Gastaut syndrome.

For example, in one 10-patient study, 90% of participants taking it had an average seizure frequency of less than one per month, and 30% of patients were seizure-free over a five-year period. In a follow-up study, there was an average 76% reduction in monthly seizures from baseline in nine Dravet syndrome patients.

If phase 3 data in September confirms this drug's efficacy -- and it doesn't raise any safety concerns -- then Zogenix could soon have a commercial-stage epilepsy drug on the market that may help thousands of people.

Optimism has already sent shares soaring to nearly $14 from around $8 last November, but there could still be more room to run higher. After all, the company's market cap is only $350 million, and ZX-008's peak annual sales potential could exceed that.

A businessman in handcuffs.


Overcoming headwinds

When Insys Therapeutics CEO Saeed Motahari took the reins in April, he took on a big challenge. The company's shares had been throttled because of investigations into the improper off-labeling prescribing of its opioid spray Subsys that has doctors and former executives to be arrested on charges of kick-backs.

Previously, Subsys was a fast-growing pain drug generating sales north of $250 million. But as much as 80% of Subsys' prescription volume was for indications that it wasn't approved for. Scrutiny of kickbacks and a growing desire to curb opioid use in pain patients have caused Subsys' sales to crash below $40 million per quarter.

Investors have also been scared away from Insys Therapeutics by a slower-than-hoped-for launch of its marijuana medicine, Syndros. The drug is an oral reformulation of Marinol that can be used in AIDS and chemotherapy patients to boost appetite and reduce nausea.

Because doses of Syndros are more easily adjusted than Marinol, optimism was high that it could capture a big share of the $200 million Marinol market. However, it took a while for the Drug Enforcement Agency (DEA) to schedule Syndros, and management turnover probably didn't help the company execute on its launch strategy, either.

With so many stumbles, it's not surprising that Insys Therapeutics shares have taken a big hit.

INSY Chart

INSY data by YCharts

Motahari, however, might have come on board at exactly the right time. While Subsys investigations continue, he seems open to settling them. Furthermore, Syndros has its DEA scheduling now, and he plans to launch it soon. He's also said he's going to jump-start the company's research programs, including work on developing medicine derived from the marijuana cannabinoid CBD for epilespy, pain, and addiction.

Undeniably, Motahari has got a lot of work to do, but his plans to get this company back on track are encouraging, and that could finally rekindle investors' interest in this stock. So far this year, shares are already up 34%.

Will patience (finally) pay off?

Keryx Pharmaceuticals' Auryxia won FDA approval in 2014, but so far, the drug has been more of a commercial dud than a stud.

Auryxia reduces phosphorous levels in chronic kidney disease patients on dialysis, and while Auryxia's oral dosing offers advantages to existing phosphate binders, it's struggled to gain a toehold in the indication. Auryxia's net product sales were just $27.2 million last year, which is less than 3% of what Sanofi's Renagel and Renvela -- the most common phosphate binders -- hauled in during 2016.

Obviously, Auryxia's performance so far has been disappointing, but there's evidence that demand for the drug is picking up, and that sales could accelerate in the coming couple of years. Auryxia's sales were $10.5 million in Q1, and this year, management thinks sales will exceed $56 million.

Revenue could climb even higher in 2018 if the FDA decides to expand Auryxia's label in November. In trials, Auryxia boosted iron levels in non-dialysis patients with stage 3 to 5 chronic kidney disease (CKD). There are 1.6 million patients with CKD in these stages who have iron deficiency anemia, and thus, an approval would significantly increase Auryxia's addressable market. 

Keryx Biopharmaceuticals shares have more than doubled from their lows, but a market cap of less than $900 million may not adequately reflect Auryxia's peak sales potential, if it gets an FDA green light later this year.

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.