In investing, it's not hard to find examples of growth stocks flying high in the good times, and then cratering hard when times get tough. Volatility is a known risk for these types of stocks. Enterprising investors who pay attention to this can set themselves up for future success by buying into great growth stocks while in the hard landing phase of the volatility. 

Two biopharma stocks are particularly appealing right now as buy candidates before the next bull market has a chance to buoy their shares once again. Both are admittedly risky with no guarantee that they'll recover all of their recent losses, but if they do, the returns will be explosive for those who are daring enough to buy them today.

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1. Guardant Health

When it comes to oncology and molecular testing stocks, Guardant Health (GH -2.75%) is one of the rising stars thanks to its meteoric growth over the last few years. It develops liquid biopsies for cancer screening, treatment selection, treatment efficacy evaluation, and recurrence detection, which means that patients don't need to experience the invasiveness of a traditional biopsy to get the health information their doctors need to determine a course of treatment. Because it has tests for each of those functions, Guardant's portfolio could theoretically be a one-stop shop for many or even most of a clinic's cancer testing needs.

Demand for several of its newer tests is surging, especially for its GuardantReveal test for recurrence monitoring and detection of early-stage breast, colorectal, and lung cancers, which saw roughly 250% year-over-year growth in its clinical volume during 2022. That's likely a major reason its annual revenue topped $449.5 million, rising 20% from 2021 totals. Despite the revenue jump, it still reported a net loss of $654.6 million for the year. 

So Guardant's tests are clearly gaining traction, and it plans to develop more products in addition to improving the capabilities of its existing ones. But as long as it's unprofitable, gaining market share just means losing money faster. So management is aiming to slash costs to conserve its $1 billion in cash, with the objective of losing only $350 million for 2023. Management forecasts that net losses will likely continue through the end of 2025 as it continues to ramp up operations, which means it might need to take out more debt or issue new shares to stay solvent.

The current bear market has not been kind to unprofitable companies over the past year and share prices are down 44.6% over the last 12 months. The risk of Guardant Health never reaching profitability remains, so only consider this stock if you can hold it long enough to finally see the revenue gains regularly outpace operational costs.

If you can stomach that risk, however, the explosive growth of its newer testing products and its consistent top-line expansion over the last few years suggest that the company could probably afford to hike its prices considerably and still see significant demand. And in the context of a bull market within the next few years, improvements to profitability might be enough to send its shares soaring.

2. Compass Pathways

Down 31.7% in the last 12 months, Compass Pathways (CMPS -4.54%) is another biomedical stock with explosive growth potential that's drawn a bad hand thanks to the bear market. At the moment, it has no significant revenue and no products on the market, though it does have $143.2 million in cash. Given its $91.5 million in net losses for 2022, that means that it can afford to stay in operation for at least another year before it'll need to scrape together some funding.

Its flagship program is COMP360, which is a therapy designed to address treatment-resistant depression using a combination of its special formulation of psilocybin (derived from psychedelic mushrooms) and psychological support from trained therapists. 

So far, COMP360 appears to be safe, and results from its phase 2b clinical trials suggest that it can lead to rapid reductions in patients' depression symptoms for at least 12 weeks as assessed by the Montgomery-Åsberg Depression Rating Scale (MADRS), a commonly used rubric.

Right now, COMP360 is in the early parts of its phase 3 clinical trials, which should conclude sometime in the summer of 2024, right when its funding situation will start to look somewhat dire. If that trial goes as planned, and there's little reason to suggest that it won't, it could be a big catalyst for the stock because the therapy will then be well on the way toward commercialization. More importantly, Compass has zero debt to speak of, so it won't struggle to get the money it needs to finalize the development of COMP360 or to advance its other programs.

It's true that pursuing a psychedelic therapy like COMP360 makes this company an especially risky investment, as scrutiny from regulators is likely to be significant, not to mention the typical suite of failure inherent to biotech stocks. On the other hand, the optimism of a bull market would make any further successes it experiences in the clinic even better for shareholders, and if it actually manages to commercialize COMP360 or another treatment, the upside would be huge.

Much like with Guardant Health, this stock is like a powder keg -- risky to carry, but with such a large potential gain and with such promising results so far that it falls on the right side of the risk-reward fence.