These three biotech stocks have produced some tremendous gains over the past year, and investors are wondering if there's any more fuel in these rockets. 

If these high-flying drugmakers are going to continue their climb, they have to cross some well-defined hurdles in front of them. Here's a look at what's ahead.

Company (Symbol) 1-Year Gain Recent Market Cap
Arrowhead Pharmaceuticals, Inc. (ARWR -2.71%) 535% $1.8 billion
Viking Therapeutics, Inc. (VKTX 1.42%) 880% $725 million
Endocyte, Inc. (NASDAQ: ECYT) 1,140% $1.2 billion

Data source: Yahoo! Finance.

Arrowhead Pharmaceuticals: Making a comeback

A clinical hold placed on a new drug candidate aimed at treating chronic hepatitis B virus sent this clinical-stage biotech stock into a tailspin near the end of 2016. That set the stage for a tremendous run-up on the back of new-and-improved candidates. Arrowhead is still developing drugs that use RNA interference to silence specific genes, but the delivery method has been given an update.

In June, investigators showed investors that a single dose of ARO-AAT reduced a target enzyme dramatically, albeit in a small group of healthy volunteers. Arrowhead's ill-fated hepatitis B candidate appeared to work well among patients allowed to take it before the FDA halted its study. The new-and-improved version, ARO-HBV, has the same new delivery mechanism as ARO-AAT, and recently presented data suggests it effectively clears the virus without any safety concerns.

Currently there are around 16 million Americans with chronic hepatitis B virus that require lifelong treatment. Further signs that Arrowhead's candidate truly provides a functional cure that frees them from treatment -- and reduces their chances of needing a liver transplant down the line -- could help this stock continue its climb. 

Person looking out window at three upward-sloping charts.

Image source: Getty Images.

Viking Therapeutics: Best in class?

Viking Therapeutics is a clinical-stage biotech stock that recently surged without lifting a finger. That's because its lead candidate, VK2809, is in the same class as an experimental drug from Madrigal Pharmaceuticals (MDGL -0.39%) that put up some impressive data earlier this year.

The main reason VK2809's outlook was so easily swayed by a peer's clinical trial data has to do with the fact that Viking doesn't have any of its own. Viking's lead candidate helped patients achieve blood-lipid reductions, but the company hasn't produced any data specific to liver fat reductions except for those observed in mouse livers. That means Viking's 80-patient phase 2 trial with NAFLD patients is a lot riskier than your average mid-stage trial. If successful mouse studies led to new drug approvals just half of the time, the FDA would green-light hundreds of new drugs each year, not dozens. 

An estimated 100 million Americans are affected by nonalcoholic fatty liver disease. Around a fifth of these patients experience inflammation that leads to permanent liver damage, a condition called nonalcoholic steatohepatitis (NASH). There's one highly effective combination therapy that stops NAFLD from progressing to NASH, but a healthy diet and plenty of exercise probably won't stand a chance against an easy-to-swallow capsule.

The first successful treatments will earn billions for the companies that develop them, but assuming success in NAFLD without human proof-of-concept data is a dangerous game. Viking also has a clinical-stage bone and muscle growth promoter in development, and results from a phase 2 trial with VK5211 will be presented on Sept. 30. While VK5211 could provide a nice fallback, Viking stock won't rise further unless VK2809 results, which are expected by the end of the year, outperform Madrigal's candidate.

Colorful pills on top of a lot of money.

Image source: Getty Images.

Endocyte, Inc.: Radioactive returns

Like Arrowhead, this biotech came roaring back after a terrifying mishap. Endocyte scuttled two cancer drug candidates in mid-2017 but surprised the market with positive data for a drug it's rushed into a pivotal study for the treatment of advanced-stage prostate cancer.

Endocyte's candidate, Lu-PSMA-617, is basically a tiny dose of radiation that binds to prostate-specific antigen (PSA) presenting cells, and it appears to do the trick. The experimental treatment reduced PSA by 50% for 57% of patients treated, and a fifth of patients saw their PSA scores knocked down by 96% on average.

Stopping cells from producing PSA is only half the equation, and the company could have the other half, proof of a survival benefit, near the end of 2019. Endocyte is currently enrolling 750 patients in a pivotal trial, and if overall survival is significantly longer among patients receiving Lu-PSMA-617, Endocyte's eye-popping climb will continue.

Mousetrap made of cash using medicine as bait.

Image source: Getty Images.

A long way to fall

All three of these stocks could climb further, but investors need to understand that without any products to sell, these biotechs are performing without a safety net. Endocyte finished June with just $168 million in cash, cash equivalents, and investments after losing $20 million in the first half of the year. If early tumor responses fizzle out over time for its lead candidate, there isn't anything in clinical trials yet to fall back on.

Arrowhead finished June with $78 million after burning through $30 million in the first half of 2018, which means another share offering is probably just around the corner. The slightest hint of another safety issue for either drug in clinical trials right now could make raising more capital extra challenging.

Viking Therapeutics finished June with a $142 million cash balance after burning through just $10 million during the first half of 2018. Despite the longer cash runway, this one just isn't worth the risk right now.

Editor's Note: This article has been updated to clarify Viking's phase 2 study results.