Biotech stocks can be volatile to the extreme. Former high-flying stocks can crash on a bad clinical outcome, regulatory review, or new competitor on the market. The interesting part, though, is that some former star biotech stocks can, on occasion, regain their momentum. Beaten-down biotech stocks, in short, can be a worthwhile place to unearth outstanding growth stocks.

Which unloved biotech stocks should investors check out? Based on their previous history as potent growth vehicles and overall prospects, Bluebird Bio (BLUE -6.51%) and Heron Therapeutics (HRTX -1.89%) are two biotechs that appear to have what it takes to rise from the ashes. With that insight, here is a brief overview on each stock's core value proposition. 

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Bluebird: Has this gene therapy company lost its magic?

Over the course of March 2014 to March 2018, shares of the gene therapy company Bluebird Bio gained an astounding 787%. It was consistently one of the hottest stocks in the market over this period. Investors were enamored with the idea of curing multitudes of severe genetic diseases with single-use treatments. Of course, if that blue-sky scenario came true, Bluebird and its shareholders would be swimming in cash right now.

BLUE Chart

BLUE data by YCharts.

Instead, the biotech has run into a litany of problems since 2018. The net result is that Bluebird's shares have lost a whopping 92% of their value since their high-water mark back in 2018. For example, the company has faced serious safety signals with each of its lead product candidates for the rare diseases transfusion-dependent beta thalassemia, sickle cell disease, and cerebral adrenoleukodystrophy.

Additionally, other promising gene-editing companies have emerged on the scene, some of which are working on the exact same indications as Bluebird. Last but certainly not least, it was unable to secure reimbursement for its products in some key European countries over pricing issues. The biotech has since retreated to the U.S., where payers are generally more forgiving when it comes to the price of novel therapies.   

Can Bluebird flip the switch? Unfortunately, there are too many moving parts to this story to make a reasonable estimate at this point. The company could end up with multiple high-value gene therapies on the lucrative U.S. market relatively soon; or it could be displaced, in large part, by safer and/or more potent forms of gene therapy. Put simply, this beaten-down biotech stock is probably best viewed as a watch list candidate for the time being. 

Heron: Is a much-needed rally incoming?

Shares of  Heron Therapeutics, whose products treat chemotherapy-induced nausea and vomiting (CINV) and surgical pain, are down by an eye-popping 65% over the prior 36 months. The stock has sunk like a stone over this period for two key reasons. First, the company's core CINV franchise has struggled to grow sales. Drugs like Cinvanti and Sustol have posted underwhelming sales so far, despite strong overall demand.

Second, and most importantly, Heron's acute pain management medication known as Zynrelef didn't get the type of broad label that many were originally expecting. The Food and Drug Administration  approved the medication last May as a treatment for acute pain associated with bunion surgery, open inguinal herniorrhaphy, and total knee arthroplasty. Investors, on the other hand, were hoping Zynrelef would be granted a far broader label that could put it on track toward becoming a blockbuster.

There has been a lot of good news from this company within the past few weeks, however. The FDA has reportedly agreed to review an initial supplemental new drug application (sNDA) for Zynrelef, which could significantly broaden its label and commercial potential. The agency also agreed on the type of studies required for a second NDA to be filed in 2022, according to the company. Finally, Heron's management believes that its CINV franchise should pick up steam from here on out. 

What's the verdict? Heron's shares would probably double on a positive outcome for Zynrelef's first sNDA. After so much regulatory turmoil with this drug, investors have simply lost faith that management can capitalize on its sizable commercial potential. Thus, any positive news on this front would likely send this small-cap biotech soaring. That's why Heron's stock is arguably the better choice as a turnaround play.