Clinical-stage biotech stocks often have enormous potential. While these companies usually don't have any products on the market, just a few fruitful breakthroughs in clinical trials or a single big win for a pipeline candidate can send their share prices soaring. But on the flip side, such stocks also carry a lot of risk. When promising treatment candidates don't pan out, share prices can plunge, and early investors have to accept a large share of that risk.

That's why, depending on risk tolerance, investors looking for stocks that could deliver life-changing returns should look seriously at young biotechs like Surface Oncology (SURF). As a bonus, investing in this biotech in particular supports the worthy cause of developing anti-cancer drugs.

A scientist sits in a laboratory next to a computer and a microscope.

Image source: Getty Images.

This biotech stock's big pop has not yet occurred

The biggest reason why Surface Oncology has 10-bagger potential (or more) is that it's an early-stage biotech company that hasn't experienced any major successes in clinical trials yet. That might sound a bit counterintuitive, but the point is that it could have such successes in its future. Its market cap is still small at around $342 million, and it hasn't had a big run-up since its 2018 initial public offering. In fact, it's trading well below its IPO price. So those who invest today will definitely not be too late to benefit from the wins it could achieve, because the market isn't perfectly pricing in those optimistic outcomes.

For now, though, it's up to the company to move forward with its pipeline projects while investors wait for positive data that could drive the stock price up over time.

That said, there have been some promising recent developments. On March 8, Surface Oncology signed an agreement with Merck to collaborate in the development of its SRF388 antibody therapy for use in conjunction with Merck's drug, Keytruda, as a treatment for solid tumors. Good results on that front could hitch SRF388's wagon to a drug that is already highly successful. But SRF388 is still in phase 1 clinical trials, so investors will need to wait for quite some time to see this collaboration convert into a revenue generator -- if it ever does. 

The company also reported another piece of positive information later in March. The U.S. Food and Drug Administration (FDA) gave Surface's drug SRF617 an orphan drug designation as a potential treatment for pancreatic cancer. As a result, the company can now develop the treatment with expedited protocols and a greater degree of cooperation from regulators, not to mention extended intellectual property protections if SRF617 eventually gets approved. Overall, the designation could cut a couple of years off the time it takes to move SRF617 to commercialization. All of the above could contribute to Surface's stock gaining altitude as the project matures.

As long as management can keep the lights on and the research and development engine going, time could be on its side. In 2020, Surface Oncology had operating expenses of $64.58 million, and it currently has about $171 million in cash on the books, suggesting that it has at least a couple of years before it will need more funds.

Be sure to hedge your bets

An important catalyst for Surface Oncology will occur in the week of June 4, when it will present clinical data updates on two of its leading programs at the American Society of Clinical Oncology (ASCO) 2021 Annual Meeting. That means there's a reason for investors to consider buying the stock now rather than waiting. But, it's important to keep Surface Oncology's potential in the appropriate context.

It's my view that this stock could be a millionaire-maker for new investors today, provided that its drugs prove effective and that it retains full ownership over them. Given that it's an early-stage biotech company, however, investors need to recognize that the chances of those drugs failing to earn regulatory approval are quite high. The majority of drug candidates don't make it to market.

So, if you're looking for a speculative stock to buttress the most aggressive portion of your diversified portfolio, this one would be a good option. On the other hand, if you're looking for companies that could still be profitable to own if they miss their moon shots, Surface Oncology may feel a bit too much like a lottery ticket for you to be comfortable buying and holding for the long term.