Biotech stocks have been outstanding growth vehicles over the past six-plus years. The industry is still in "hypergrowth" mode because of a number of favorable tailwinds, such as an aging global population that's driving a surge in demand for healthcare products, and the further maturation of game-changing medical technologies such as genome-editing and high-throughput gene sequencing. 

As a result, I think investors should have at least one biotech stock in their portfolio heading into 2018. Which biotech stocks offer the best risk-to-reward ratio right now? My recommendations, in order of decreasing market cap, are Celgene Corporation (NASDAQ:CELG), Juno Therapeutics (NASDAQ:JUNO), and Cara Therapeutics (NASDAQ:CARA). Here's why. 

A hand holds an vial containing a virtual image of DNA.

Image source: Getty Images.

Large-cap pick: Celgene Corporation

Celgene Corporation is a large-cap biotech stock that sports a small-cap growth trajectory. Specifically, the company is forecasting a healthy 14.5% compound annual growth rate for its top line over the course of 2017 to 2020. That's a remarkable growth trajectory for a company with a market cap of $80 plus billion, especially after Celgene was forced to recently lower its revenue forecast in a significant manner for the plaque psoriasis treatment, Otezla, because of new competitive threats.  

The real reason Celgene is a top biotech to buy in 2018, however, is that the company has built a solid growth platform that should keep its top line racing higher well beyond 2020. Long story short, Celgene has signed numerous licensing and external development deals to vastly augment its immuno-oncology and anti-inflammatory clinical assets. The net result is that the biotech expects a whopping 12 pivotal-stage readouts to take place by the end of 2018. 

Celgene's rapid growth rate has also turned it into a top cash cow in the industry. For example, the company generated a respectable $1.1 billion in free cash flow in the third quarter of 2017. Celgene is thus planning to accelerate its $3.8 billion share-repurchase program, which should have a positive effect on the bottom line during the first two quarters of 2018. 

In all, Celgene is worth owning because of its forward-looking managerial team that has consistently guided the company to industry-leading levels of top- and bottom-line growth. 

Mid-cap pick: Juno Therapeutics 

Juno is set to step into the spotlight in a big way next year, thanks to its experimental CAR-T therapy JCAR017, indicated initially for diffuse large B-cell lymphoma (DLCBL).

The biotech's value proposition rests on the assumption that JCAR017 can produce similar efficacy results as Gilead Sciences' (NASDAQ:GILD) recently approved Yescarta in DLCBL patients who have already received multiple lines of chemo, but with a far more attractive safety profile. And so far, this key assumption appears to be holding up as JCAR017's clinical program progresses -- at least based on Juno's impressive abstracts for the upcoming American Society of Hematology meeting this December.

Juno's ability to bring a safer CAR-T product to market could help it to leapfrog Gilead's first-mover advantage and also broaden the commercial opportunity for these novel cell-based therapies in general. At present, CAR-T products are really treatments of last resort because of their potentially deadly side effects such as cytokine release syndrome, and high levels of neurotoxicity. JCAR017, however, could change this situation for the better if its encouraging safety profile stays the course.  

The bottom line is that Juno is on track to possibly grab its first regulatory approval with JCAR017 as early as 2018. And if this line holds, Juno could end up cutting deeply into Gilead's presumed multibillion-dollar CAR-T franchise.  

Small-cap pick: Cara Therapeutics

Cara Therapeutics stock has performed exceptionally well this year by gaining over 42% at the time of writing, and this small-cap drugmaker appears primed to carry this strong momentum into 2018 with several clinical milestones already on the docket for next year. 

Turning to the details, Cara's kappa-opioid receptor agonist, CR845, is set to enter a pivotal stage trial before the end of this year as a potential treatment for moderate to severe chronic kidney diseases associated with itching in hemodialysis patients, and this experimental compound is also currently in a late-stage trial for acute postoperative pain. Taken together, these two initial indications could generate upwards of perhaps $400 million in peak annual sales.

While CR845 is no longer viewed as a rock solid blockbuster candidate because of its mixed mid-stage results in the high-value chronic-pain arena earlier this year, this experimental drug could still spark a huge rally in Cara's shares in 2018. As most biotechs trade at a rich premium relative to the peak sales potential of their flagship products, after all, Cara's current market cap of $432 million strongly implies that the market thinks at least one of CR845's lead indications will go belly-up -- creating a potential value gap that might be particularly attractive to risk-tolerant investors.