Small-cap biotech stocks, or companies with valuations ranging from $300 million to $2 billion, can generate truly astonishing returns on capital in exceptionally short periods of time. Several of the best-performing biotech stocks within the past few years, after all, started off as under-the-radar companies with exceedingly low market capitalizations. 

That being said, small-cap biotechs can also be tremendously risky assets to own, given that these types of companies tend to be either working on unproven technologies or still in the initial stages of a commercial launch for a key new product. 

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The small-cap biotechs Amarin Corp. (NASDAQ:AMRN), MannKind Corp. (NASDAQ:MNKD), and 22nd Century Group (NYSEMKT:XXII), for instance, are perfect examples of this high-risk, high-reward theme. While all three of these companies could be gearing up for an absolutely monstrous run higher in 2018, they also each face a plethora of headwinds that might derail their juicy value propositions going forward.

As such, I think it's worthwhile to consider if any of these speculative biotech stocks are worth buying right now -- or alternatively, if their risk profiles are simply too steep at this stage in the game.

Amarin is on a roll

Cardiovascular disease is the No. 1 killer in the world. While there is no "magic bullet" being developed that can change this fact, Amarin's highly refined fish oil pill, Vascepa, could be a major new weapon in the battle against this epidemic. To date, Vascepa has produced compelling late-stage results in patients with both severely and moderately elevated triglyceride levels. The drug is presently in a large cardiovascular outcomes trial known as REDUCE-IT that's scheduled to read out in the first half of 2018. 

Although the U.S. Food and Drug Administration initially balked at approving an expanded label for the drug beyond patients in the severe triglyceride category, Amarin did eventually win a pivotal legal battle with the agency that enabled its sales reps to at least talk to doctors about Vascepa's potential benefits in individuals with moderately high triglyceride levels. Since then, Amarin's revenue and share price have both been steadily marching higher:

AMRN Chart

AMRN data by YCharts.

To keep up this momentum, Amarin unequivocally needs a win in REDUCE-IT next year. A failure may result in a sharp drop in the sales of the company's only FDA-approved product. 

The comeback kid

MannKind seemed to be a goner after its former marketing partner Sanofi (NYSE:SNY) returned the commercial rights to the inhaled insulin product Afrezza at the start of 2016. MannKind had essentially exhausted its own limited financial resources to bring Afrezza to market in the first place, so its licensing deal with Sanofi appeared to be the only viable way to get the product's commercial launch underway in earnest. 

In the past 22 months since Sanofi's exit, MannKind has undergone a fairly significant managerial shake-up, improved its capital structure through a common stock for warrant exchange, and convinced the FDA to change Afrezza's label in a favorable way. The net result is that MannKind's valuation (market cap) has subsequently risen by a healthy 56% since the start of 2016. 

Are investors right to cheer these moves? In some ways, the answer is undoubtedly "yes," but the company still faces a serious debt problem that could hamper its growth moving forward. Put simply, Afrezza's less restrictive label must translate into a sizable jump in sales soon, or the biotech will almost certainly run into trouble in terms of meeting its financial obligations. 

Are cigarettes a thing of the past?

The new FDA commissioner Scott Gottlieb wants to make cigarettes a thing of the past because of their well-documented negative impacts on human health. In a recent announcement, for instance, the agency said that it wants to reduce the level of nicotine in combustible cigarettes to non-addictive levels -- citing their authority under the under the Family Smoking Prevention and Tobacco Control Act to do so.

This proposed regulatory action prompted some analysts to recently upgrade their outlook for the small-cap plant biotech company 22nd Century Group in a big way (up from $3.50 to $11.50 per share). That's because 22nd Century Group is presently developing low-nicotine cigarettes and smoking cessation aids that could benefit tremendously from the FDA's latest attempt to extinguish the cigarette industry altogether.

That being said, there's little reason to think that big tobacco is going to passively accept the FDA's hard-line stance on nicotine levels in combustible cigarettes. Moreover, it's hard to see why smokers would pivot to low-nicotine cigarettes when other alternatives, like vaping or e-cigarettes, are likely to still be available. 22nd Century Group's low-nicotine tobacco pitch has nevertheless captured the imagination of investors lately -- evidenced by the 175% appreciation of its market cap so far this year. 

Are any of these stocks buys?

All three of these small-cap biotechs are unquestionably ultra-high risk. So while Amarin, MannKind, and 22nd Century Group could all continue to blast northward as their respective businesses mature, investors arguably shouldn't buy any of these stocks unless they are comfortable with wild price swings and the very real potential of losing most -- if not all -- of their capital if things don't go as planned. 

George Budwell 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.