It's been a year of ups and downs across the industry, and these three biotech stocks could be in the early stages of a much longer climb. Despite eye-popping returns, all three are developing new drugs with blockbuster sales potential that their stock prices haven't yet caught up with.

Chasing stocks on the rise usually doesn't work out the way investors want it to, but all three of these drugmakers have what it takes to keep their stock prices moving in the right direction.

Company (Symbol) Stock Price Gain in 2019 Market Cap
Axsome Therapeutics (NASDAQ:AXSM) 838% $875 million
Galapagos NV (NASDAQ:GLPG) 85% $9.3 billion
Blueprint Medicines (NASDAQ:BPMC) 75%

$4.6 billion

Data source: Yahoo! Finance.

Here's what investors need to know about the paths ahead for these drugmakers.

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1. Axsome Therapeutics: Running toward danger

When your pharmacist warns you about dangerous drug interactions, usually it's because one drug amplifies the effects of another. Axsome Therapeutics is making new combination treatments based on well-known interactions physicians have been taught to avoid, and the results so far have exceeded all expectations.

The company's lead candidate, AXS-05, is a decades-old antidepressant -- bupropion -- that gets a measured boost from dextromethorphan, the active ingredient in most cough suppressants. This seemingly minor tweak improved bupropion's efficacy by a mile for patients with treatment-resistant depression. In a mid-stage study, AXS-05 helped 47% of patients achieve remission compared to just 16% in the placebo group.

The FDA appears willing to review an application to treat people with major depressive disorder (MDD), based on mid-stage trial results, then use data from an ongoing phase 3 trial for confirmation. MDD affects around 6.7% of adults in the U.S., and around a third of them resist currently available treatments.

While the MDD indication for AXS-05 could generate annual sales above $1 billion in several years, it's not the only blockbuster indication in front of Axsome and its pipeline. The company's lead candidate is also in a phase 3 study for the treatment of agitation brought on by Alzheimer's disease, and a mid-stage smoking-cessation trial study produced compelling results earlier this year.

Axsome isn't a one-trick pony, either. The company has applied its combination approach to rizatriptan, a commonly prescribed acute migraine headache reliever that doesn't work as often as patients would like it to, and a nonsteroidal anti-inflammatory drug called meloxicam. Axsome expects to report pivotal trial results for AXS-07 before the end of the year, and send a new drug application to the FDA in early 2020.

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2. Galapagos NV: Gilead's independent subsidiary

Successful hepatitis and HIV treatments have given Gilead Sciences (NASDAQ:GILD) a lot of cash to work with, and Galapagos is about to receive a significant chunk. Gilead will hand over a $3.95 billion upfront payment, a $1.1 billion equity stake, and add two members to Galapagos' board of directors.

In return, Gilead receives rights to GLPG1690, a potential new treatment for idiopathic pulmonary fibrosis (IPF), and a lot more. From now through 2032, Gilead Sciences has the option to license any new drug candidate ready for phase 3 trials after Galapagos funds its development through phase 2 studies.

For the next decade, Galapagos will discover and develop whatever it fancies, knowing that Gilead can opt in for $150 million and take over the most expensive stages of development. Galapagos also remains eligible for steady royalty payments that will range from 20% to 24% of sales that result from the collaboration.

Gilead plans on sending an application for filgotinib, an oral anti-inflammation candidate for rheumatoid arthritis, to the FDA by the end of the year. To keep climbing past its recent $9.3 billion market cap, Galapagos needs filgotinib plus at least one more experimental therapy to earn approval and succeed in commercial stages. That's a tall order for any partnership, but Galapagos' chances look better than average.

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3. Blueprint Medicines: The next big oncology buyout?

A recurring theme in biotech mergers and acquisitions has been demand for small-molecule drugs, the kind you can swallow, that hit targets previously considered impossible. Blueprint Medicines is quickly becoming a key takeout target thanks to a burgeoning stable of high-precision cancer therapies.

Blueprint's most advanced candidate to date is avapritinib, a potential new treatment for patients with systemic mastocytosis (SM) and gastrointestinal stromal tumors (GIST) that harbor specific genetic mutations. During the pivotal Navigator trial, avapritinib shrank tumors for 86% of patients, and the company submitted an application to the FDA recently that could make it an important new treatment option for this group.

Blueprint Medicines also has a tumor-agnostic candidate in late-stage development called BLU-667. This potential new therapy could earn approval to treat any patient with RET-altered tumors. In a pivotal trial, BLU-667 shrank tumors for 60% of lung cancer patients who had already been treated with standard chemotherapy.

An application for BLU-667 should be ready for the FDA in early 2020. This means Blueprint could have two new drugs on the market by the end of 2020 if a well-heeled drugmaker doesn't make a big buyout offer first.

Know your tolerance

While there's a good chance that these stocks will keep climbing, it's important to remember that none of these companies have regular revenue streams yet. As is always the case with clinical-stage biotechs, an unexpected trial result or an unfavorable FDA decision could lead to swift losses.

If you're the intrepid sort who isn't worried about such risks, at least be sure to limit your exposure to a small sliver of your portfolio.