It's been a banner year for early-stage biotech stocks and we're barely into the second half. The iShares Biotechnology Index has risen an impressive 8.9% this year, but the market for small, early-stage biotech stocks is even frothier than the industry tracking index suggests.

Here's why investors just can't get enough of these four risky drugmakers lately.

Company (Symbol) Year-to-Date Gain Market Cap
Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) 348% $1.44 billion
Endocyte, Inc. (NASDAQ: ECYT) 291% $1.16 billion
ArQule, Inc. (NASDAQ:ARQL) 258% $514 million
Madrigal Pharmaceuticals Inc. (NASDAQ:MDGL) 218% $4.16 billion

Data source: Yahoo! Finance.

1. Arrowhead Pharmaceuticals Inc.: Early comeback

This RNA-focused company hit a major setback less than two years ago that set the stage for a roaring comeback. Investors have been pushing up the stock this year in response to progress with a growing pipeline of early-stage drug candidates, two of which have already started human testing.

In May, Arrowhead began dosing hepatitis B patients with ARO-HBV, and investigators will probably present the results at a conference this September. More recently, the company presented data from a study with 44 healthy volunteers who tried different doses of its second clinical-stage candidate, ARO-AAT.

Arrowhead's lead candidate is intended to help people that produce a mutated form of alpha-1 antitrypsin (AAT), so investors were pleased to see clear AAT knockdowns among healthy patients. 

If knocking down AAT translates into a survival benefit down the road, ARO-AAT could end up generating nine-figure annual sales for Arrowhead. The company has three more clinical trial applications planned for later this year, which could give the biotech plenty more chances to please investors in the quarters ahead.

68Ga-PSMA-11 PET images at baseline and three months after 177Lu-PSMA-617 in eight patients with PSA decline greater than 98 percent.

Scans from eight advanced-stage prostate cancer patients before and after treatment with Lu-PSMA-617. Image source: Endocyte, Inc.

2. Endocyte, Inc.: Gone radioactive

This stock has delivered some nuclear-powered returns this year with the help of its lead candidate Lu-PSMA-617. This radioactive prostate cancer drug blasts subatomic particles in the vicinity of tumors that secrete prostate-specific antigen (PSA) by binding to the antigen itself.

It still needs to succeed in an ongoing pivotal trial, but it looks like Lu-PSMA-617 can really make a difference for advanced-stage prostate cancer patients with tumors that have already spread. In fact, a group of before-and-after photos from eight prostate cancer patients treated with Endocyte's candidate was recently selected as Image of the Year by the Society of Nuclear Medicine and Molecular Imaging.

Endocyte started treating patients with Lu-PSMA-617 in a pivotal trial that will check for a survival benefit, which can take years. If the company can convince the FDA to approve the drug based on its tumor-fighting ability alone, though it would speed up the process and send the stock flying even higher.

Four scientists working together in a lab.

Image source: Getty Images.

3. ArQule, Inc.: Partnering up

This is another biotech making a comeback following a late-stage disaster. The company recently sold rights to develop and commercialize an experimental liver cancer treatment called derazantinib to Roivant Sciences, which will develop and possibly market the drug in China. The stock rose further following an even bigger tie-up with Basilea Pharmaceutic Ltd., which will take the reins outside of China.

Derazantinib isn't the only candidate lifting this stock as it still has four wholly owned programs, including ARQ-531. Three different dosages of this blood cancer candidate reduced tumors by 29% or better for 11 blood cancer patients that had already failed other lines of treatment, plus it hasn't led to any serious side effects yet. That's unusual for a cancer therapy that also appears effective, and a repeat performance in a larger study would allow the stock to continue its climb.

A blister pack full of dollar signs instead of medicine.

Image source: Getty Images.

4. Madrigal Pharmaceuticals Inc.: Lowering liver fat

Lowering liver fat during an early-stage clinical trial sent this biotech stock screaming higher this year. Nonalcoholic steatohepatitis (NASH) is the leading cause of liver cancer, but there aren't any treatments for an estimated 30 million Americans living with the disease right now.

A high dose of Madrigal Pharmaceuticals' lead candidate, MGL-3196 helped 75% of patients achieve a 30% or greater liver fat reduction at 12 weeks. Only 18% of those in the placebo group hit this endpoint, which makes Madrigal an awfully attractive acquisition target for deep-pocketed drugmakers looking to serve the enormous NASH population. 

The mid-stage study with MGL-3196 is ongoing and will produce more data in a few months. If the responses seen at 12 weeks remain durable at the 36-week observation point, this stock could rise even further.

A lot more to lose now

Watching one biotech stock after another shoot up the way these four have can make you feel like you're missing out. While it's tempting to latch on to these stocks now in hopes their rockets still have some fuel to burn, that's a dangerous game.

None of these companies have a significant source of revenue yet, and it could be years before any have a chance. That means all of the gains they've produced this year could quickly reverse on the heels of unlucky clinical trial results, safety issues, or regulatory delays. While these stocks are certainly worth attention, diving in before you understand all the risks could lead to heavy losses.

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.