Biotech stocks are finally starting to show signs of life again. Despite stubbornly high levels of inflation and eroding profit margins among some U.S. banks during the second quarter, biotech stocks have largely shrugged off the headwinds to post respectable gains since the start of the second half of 2022. 

Pliant Therapeutics (PLRX -3.02%), a small-cap, clinical-stage biotech, has helped to lead the space higher this month. Thanks to a positive phase 2a trial readout for its idiopathic pulmonary fibrosis (IPF) candidate known as PLN-74809, the drugmaker's shares nearly quadrupled in value at one point in early July.

Matter of fact, the only reason Pliant's shares aren't still more than 200% higher thus far in July is that the company immediately decided to push through a sizable secondary offering following the publication of those fairly strong mid-stage trial results. Nonetheless, Pliant's shares are still up by a healthy 163.4% for the month at the time of this writing. 

Despite this meteoric rise, Wall Street's 12-month average price target for Pliant's stock implies a healthy 99.7% upside from current levels. Should aggressive investors take a flier on this clinical-stage biotech or watch its story unfold from the safety of the sidelines?

Pliant's risk-to-reward profile

Although the company does have a licensing deal in place with Novartis for an early-stage liver fibrosis drug, Pliant's core value proposition centers around PLN-74809. Wall Street expects the IPF drug market to grow into a $6 billion space by the close of the decade.

As things stand now, there are two FDA-approved drugs for IPF -- Boehringer Ingelheim's Ofev and Roche's Esbriet. Even so, there is still substantial unmet medical need in the indication due to the unfavorable side effect profiles associated with those approved treatments.

What's more, big pharma has had serious difficulties trying to fill this treatment gap. Gilead Sciences and its partner Galapagos, for example, were forced to discontinue the development of their late-stage IPF candidate, ziritaxestat, early last year after an independent data monitoring committee noted that the benefit-risk profile did not support continuing its studies of the drug.  

Pliant's therapy could be a game changer in this regard. Results from the mid-stage study showed that it was relatively well-tolerated, exhibited clear signs of efficacy in an exploratory analysis, and had a favorable pharmacokinetic profile.

If approved, PLN-74809 could ultimately generate peak annual sales north of $1.5 billion, according to some analysts covering the stock. That's a jaw-dropping commercial opportunity for a company with a $981 million market cap at the time of this writing.

That said, in the best-case scenario, Pliant is still a few years away from even filing for the drug's regulatory approval. IPF has also proven to be one of the more difficult indications to treat. A late-stage success in this indication is far from a sure thing. 

Time to buy? 

Is Pliant's stock worth the risk? There's no doubt that this tiny biotech company sports a hefty risk profile. While IPF is a massive market, there are scores of other companies attempting to develop drugs in the indication. Moreover, Pliant has a lot of work ahead of it if it's to get PLN-74809 onto the market.

Overall, this intriguing small-cap biotech stock is arguably only suitable for ultra-aggressive investors with long-term outlooks. That being said, it does indeed harbor the very real potential to double in value if everything goes according to plan.