Cancer drugs can be game-changers for their developers because of their comparatively high margins and their tendency to be applicable to a broad array of disease states. In short, Foolish investors would be wise to keep an eye out for companies developing novel cancer treatments, especially in the small-cap space where a new drug would be a transformative event. So, with this goal in mind, here is my take on three small-cap biotechs with upcoming catalysts for their experimental cancer drugs. 

Inovio could report game-changing mid-stage data soon
Inovio Pharmaceuticals (INO -3.29%) is developing a DNA-based vaccine called VGX-3100 with the goal of treating Grade 2/3 Cervical Intraepithelial Neoplasia, or CIN. The vaccine is currently in the midst of a mid-stage trial that is expected to wrap up by the end of March. As such, a topline data readout could come as early as April, but probably no later than May.

Although Inovio hasn't given a precise market projection for VGX-3100, it believes the vaccine's commercial potential lies in the multi-billion dollar range due to the large number of new CIN cases reported each year. This market opportunity dwarfs Inovio's current market cap of $573 million, which is probably why it's one of the most popular small-cap biotechs among retail investors.

What's my take? I personally think speculation has its place in a portfolio, as long as the risk is managed appropriately. With Inovio, it's key to understand that the company is attempting to be the first to commercialize a DNA-based vaccine, which carries its own unique risks. In short, I would caution investors against putting too much into this speculative biotech, but at the same time, the science is compelling enough to warrant a deeper look. 

Insiders buying Merrimack ahead of MM-398's topline data release
Merrimack Pharmaceuticals (MACK 0.14%) is a promising developmental stage cancer company that is largely overlooked by the retail community. The company's lead clinical candidate is a liposomal encapsulation of Pfizer's colon cancer drug irinotecan, which Merrimack has dubbed "MM-398." In theory, the liposomal encapsulation should increase absorption of irinotecan into the tumor and allow for higher dosings that increase the drug's clinical benefit.

Merrimack is testing MM-398 in a late-stage trial called NAPOLI-1 as a potential second line treatment for advanced pancreatic cancer. I think Merrimack is worth checking out because topline results for NAPOLI-1 have been pushed back to the second quarter of 2014 due to deaths occurring later than expected.

While management cautioned investors against reading too much into the delay, they did start to buy their own stock in a big way following this announcement. Director Michael Porter, for example, purchased over a million dollars' worth of Merrimack shares on the open market in the fourth quarter of 2013 alone. And he was joined in this insider buying bonanza by both Directors and Officers alike.

While Merrimack does fall firmly under the banner of 'speculative biotech', I believe the recent spate of insider buying, coupled with the delayed data release, makes this company worthy of a deeper look.

Could Sunesis break the trend of small cap cancer drug failures?
A clear trend exists between a company's market cap and the probability of its experimental cancer drug being approved by the FDA. In short, small-cap biotechs have a horrendous track record in terms of approvals for their cancer treatments.

Yet, I think Sunesis Pharmaceuticals (SNSS) could have what it takes to win one for the little guy. The company's late-stage experimental drug for relapsed and refractory acute myeloid leukemia, or AML, called vosaroxin also had its topline data readout delayed due to deaths occurring later than expected.

What caught my interest was a comment by CEO Daniel Swisher during a presentation at the recent Leerink Global Healthcare Conference in New York. Specifically, he said that patients in the trial "appear to be benefiting from drug therapy". Put simply, the prognosis is so poor for AML that it's hard to imagine that patients are exceeding expectations purely by chance alone.

Why is Sunesis worth checking out? Firstly, management believes vosaroxin's peak sales as an indication for AML could top $1 billion. Moreover, the company has retained worldwide rights to the drug. That said, it's important to understand that the company has less than $50 million in cash, meaning that a secondary offering prior to the data readout is a pretty good bet.

Foolish takeaways
Smallish biotechs that achieve clinical success with a cancer drug tend to be prime buyout targets. And I think all three of these companies could be buyout fodder, if their respective drugs prove successful. Even so, you should always keep the substantial risks of clinical failure in mind, and consider each company's long-term prospects in case things don't go according to plan. With that in mind, I believe Merrimack is the 'safest' play among these three speculative biotechs, but the other two do have intriguing risk to reward ratios, in my opinion, as well.