Although 2014 has gotten off to a rocky start for biotechs, a fair number of companies have exploded higher after reporting positive clinical trial data. For example, Endocyte doubled in a day after unveiling positive data for its experimental cancer drug last month, and Furiex Pharmaceuticals soared by 165% upon releasing top-line results for its irritable bowel syndrome drug eluxadoline in February.

Merrimack Pharmaceuticals (NASDAQ:MACK) and Sunesis Pharmaceuticals (NASDAQ:SNSS) both face upcoming catalysts for their lead oncology drug candidates, which could push shares higher or cause them to drop. Let's take a look at whether these companies offer investors a reasonable risk-to-reward ratio heading into these seminal events.

Merrimack prepares data release for cancer drug MM-398
Pancreatic cancer has one of the worst five-year prognoses of any cancer type, and pharmaceutical options are extremely limited, especially for patients whose disease has metastasized. Patients who fail or stop responding to Eli Lilly's (NYSE:LLY) front-line treatment Gemzar (gemcitabine) have almost no therapeutic alternatives beyond enrolling in a clinical study.

Merrimack hopes to change this outlook with its nanotherapeutic encapsulation of Pfizer's (NYSE:PFE) marketed chemotherapy drug irinotecan, dubbed "MM-398." MM-398 is being studied in a late-stage trial for gemcitabine-refractory pancreatic cancer, and it has received orphan drug status for this indication from the U.S. Food and Drug Administration. The company pushed back a top-line data readout for the trial last year because patients were living longer than expected. The data release is now expected in the second quarter of 2014.

While you should keep in mind that pancreatic cancer drugs generally have a poor clinical track record, Merrimack's trial is designed to give the company three potential routes to FDA approval. Specifically, management stated in its recent fourth-quarter earnings call that MM-398 could show a clinical benefit in both study arms or only one. However, it also noted that MM-398 could show a clinical benefit without a statistically significant result, which might warrant a regulatory filing as well -- although it's much less likely the drug would be approved under this scenario. Merrimack's management seems to believe that the limited therapeutic options for gemcitabine-refractory pancreatic cancer patients could warrant a filing for a new drug that shows even a hint of efficacy. While that remains to be seen, you can learn more about MM-398's clinical trial design and regulatory options in Merrimack's fourth-quarter earnings release.

In terms of value proposition, MM-398's peak sales have been estimated at around $800 million for pancreatic cancer, if approved, roughly 33% greater than Merrimack's current market cap of $540 million. 

Sunesis also delays top-line data for leukemia drug
Not to be outdone, Sunesis Pharmaceuticals also announced recently that its late-stage experimental drug vosaroxin for relapsed and refractory acute myeloid leukemia, or AML, would have its top-line data readout delayed because patients were surviving longer than expected. The data release was expected to occur this quarter, but is now on track for the third quarter of 2014.

AML is a rapidly developing type of blood cancer with an extremely poor prognosis -- the overall five-year survival rate is about 25%. There are few treatment options available for this disease, and most experimental candidates to date have suffered from severe toxicity. Sunesis' vosaroxin is a first-in-class anti-cancer quinolone derivative that has received FDA orphan drug status and fast-track status for AML. The company believes that because vosaroxin is less chemically reactive than compounds with similar mechanisms of action, it should have a more acceptable toxicity profile, the problem dogging most AML treatments. Notably, earlier clinical trials showed that vosaroxin can elicit complete responses in AML patients, a particularly encouraging development.

Management believes vosaroxin could generate peak sales of about $900 million for this indication alone. Given that Sunesis only has a present market cap of $427 million, I think the stock could do very well if vosaroxin delivers positive top-line data later this year.

Foolish wrap-up
These two clinical-stage biotechs are certainly worth watching given the value proposition of their upcoming catalysts compared to their respective market caps. In terms of risk-to-reward ratio, I believe Merrimack edges out Sunesis. What's key is that MM-398 is not one of Merrimack's core products, but rather is being co-developed with Taiwan's PharmaEngine. As a result, failure of MM-398 would not reflect strongly on Merrimack's other clinical candidates that are primarily monoclonal antibodies, while a failure for vosaroxin would be a major setback for Sunesis. Overall, Sunesis' valuation is intimately tied to vosaroxin, but Merrimack's is spread out more evenly among its entire pipeline, offering investors less downside risk in case MM-398 fails at this critical juncture. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.