Investors seeking stocks that can produce dramatic gains in 2024 can find what they're looking for in the biopharmaceutical industry. Clinical-trial results that these two companies are expected to announce soon could cause these biotech stocks to rocket higher.

While big, incoming catalysts could push these stock prices higher, there is also a lot that can go wrong. Here are a few things you want to know about the opportunities and challenges ahead of these drugmakers before taking any risks of your own.

Vertex Pharmaceuticals

Sales of cystic fibrosis treatments from Vertex Pharmaceuticals (VRTX -0.06%) are on pace to pass $10 billion annually, but investors want to see the company expand beyond an indication that only affects around 105,000 people globally.

To help expand its addressable market, Vertex finished September on pace to spend more than $3 billion on research and development in 2023. Soon, investors will see if an important portion of that research can pay off.

In early 2024, Vertex is expected to share results from two studies with VX-548. This is a new, non-opioid pain-relief candidate that inhibits NaV1.8, a protein that plays a crucial role in sending pain signals to the brain.

Last November, Vertex said it had already finished a phase 3 trial with VX-548 as an acute pain reliever for patients following "tummy tuck" procedures. Another phase 3 trial with patients who just had bunions removed from their feet has likely wrapped up as well.

A new way to treat chronic and acute pain could bring in billions for Vertex, but success in phase 3 is far from guaranteed. Pain is hard to measure, and trials designed to measure pain relief are highly subject to a placebo effect. This combination of challenges makes developing new pain drugs a risk that most drugmakers avoid.

Shares of Vertex are up more than 40% over the past year thanks to the recent approval of the first therapy from its collaboration partner, CRISPR Therapeutics. The rally pushed its valuation up to 24.9 times forward-looking earnings expectations.

Vertex Pharmaceutical's valuation appears reasonable when you consider how rapidly sales of its cystic fibrosis drugs have grown so far. Looking ahead, though, there aren't enough untreated patients available to continue growing at the same pace.

Vertex's pain-relief program could produce results that push the stock higher, but the stock presents a level of risk that should convince cautious investors to keep looking for better ideas.

Amylyx Pharmaceuticals

The U.S. Food and Drug Administration (FDA) approved Relyvrio from Amylyx Pharmaceuticals (AMLX -1.12%) in 2022 as a treatment for the underserved population of patients with amyotrophic lateral sclerosis (ALS).

Relyvrio is the company's first and only drug, and its initial launch has been a success with sales that reached $103 million during the third quarter of 2023. Continued success, though, depends on phase 3 trial results expected in March.

ALS is a progressive neurodegenerative disorder that is typically fatal within several years of receiving a diagnosis. Due to a lack of disease-modifying therapies, the FDA was somewhat lenient and approved Relyvrio based on results from a 137-patient phase 2 trial called Centaur.

In Centaur, patients randomized to receive Relyvrio scored significantly lower on an ALS severity test 24 weeks after beginning treatment. The benefit was statistically significant, but there's been criticism regarding the way data was collected.

The European Medicines Agency hasn't approved Amylyx's drug yet, so plenty of eyes will be watching for results from an ongoing phase 3 study, named Phoenix, that could wrap up in March. Amylyx needs success in the Phoenix study to gain marketing authorization for its drug in the EU. In America, though, Relyvrio already has full approval from the FDA, so there's little that the agency can do if Phoenix flops.

Amylyx Pharmaceuticals' $1.1 billion market cap seems too low even if we assume Phoenix will produce less-than-satisfying results. A dearth of treatment options for the ALS community drove Relyvrio sales up to an annualized $411 million in Q3.

With just one drug, any investment in Amylyx is a risky one even if the stock appears deeply undervalued. If you have a high tolerance for risk, though, smashing the buy button on this stock looks like the right move.