Biotech stocks that crumble after a clinical or regulatory setback can turn out to be stellar long-term buys. Even so, it's critical to understand why the stock plunged in the first place, and how management plans on putting the company on track to rebound. 

After this latest pullback in the healthcare sector, there are ample names to choose from when it comes to "beaten down biotechs." Among them, I am personally intrigued by the long-term prospects of Dynavax Technologies (NASDAQ:DVAX), CellDex Therapeutics (NASDAQ:CLDX), and Clovis Oncology (NASDAQ:CLVS), all of whom have had an absolutely horrendous year: 

CLDX Chart

CLDX data by YCharts

With that in mind, here is a deeper look at why I think these three companies are bargains at current levels. 

Dynavax's hepatitis B vaccine candidate offers a compelling value proposition
Shares of Dynavax nose-dived after the company's experimental hepatitis B vaccine dubbed "Heplisav" was rejected by the FDA due to insufficient data on the vaccine's safety profile last year.

To make a long story short, the FDA requested an additional late-stage study to ensure that the vaccine was as safe as those already on the market. Dynavax has thus initiated a new late-stage trial for Heplisav to address the safety concerns, as well as to examine the vaccine's efficacy profile in hard-to-treat subgroups like diabetics.

Given that there weren't any major safety signals in the last study and the vaccine was shown to be superior to GlaxoSmithKline 's (NYSE:GSK) Engerix-B, this stock looks like a strong candidate to move upward heading into the clinical data readout, sometime in early 2016. In a nutshell, Heplisav peak sales are expected to hover around $700 million, and Dynavax's current market cap is a mere $400 million. 

CellDex's fortunes could reverse in a hurry
CellDex proves that a year in the biotech industry should probably be measured in dog years. Last year, CellDex shares rose nearly 300%, making it one of the best stocks in the healthcare sector. This year, its shares have lost a whopping 40% of their value. 

What's noteworthy about this stock is that it has fallen largely because of the sectorwide pullback among clinical-stage biopharmas, and the failure of some of its competitors late-stage clinical candidates. CellDex's brain cancer drug, rindopepimut, and its promising antibody drug conjugate, Glembatumumab vedotin, are still on track to generate multiple catalysts for this stock over the next 24 months.

Perhaps like most investors, I am not terribly optimistic about rindopepimut's chances in light of how resistant glioblastoma multiforme has been to a variety of experimental treatments. But Glembatumumab vedotin's ongoing trial for triple negative breast cancer, along with its other earlier stage clinical candidates, make this company one to keep a close eye on going forward.  

Clovis's experimental lung cancer drug makes this stock look cheap
Clovis Oncology has a couple of potential value drivers in its pipeline, but all-eyes are presently focused on its epidermal growth factor receptor, or EGFR, inhibitor called CO-1686 as a potential treatment for non-small cell lung cancer, or NSCLC. The company is locked in a heated battle with AstraZeneca (NYSE:AZN) to be the first one to market for this new type of breakthrough therapy.

Although we haven't learned an awful lot about CO-1686's progress in the clinic, AstraZeneca has reported that its EGFR inhibitor reduced tumor burden by 51% in evaluable patients earlier this year at the American Society of Clinical Oncology meeting. And a more recent data release at the European Society for Medical Oncology meeting showed that AstraZeneca's drug produced a 70% response rate, compared to only 30% for patients receiving standard therapy. Based on what we've seen thus far, Clovis's candidate looks at least comparable in terms of efficacy. 

What's key to understand is that some experts believe the first drug to market could garner up to $3 billion in peak sales. Given Clovis' market cap of about $1.8 billion, this stock could therefore be a huge bargain if it can win out over AstraZeneca's drug in the quest to be first to market. 

Foolish takeaways
I like all three of these stocks right now because they look grossly undervalued compared to even a fraction of their potential to generate revenue down the line. Truth be told, I think investors have shied away from these names mostly because their catalysts are still a ways away, 8 to 12 months in most cases. Yet, this is the very reason they are on my radar now. As we close in on their clinical and regulatory catalysts, I expect their share prices to be markedly higher, making the wait worthwhile. 

George Budwell owns shares of Dynavax Technologies. The Motley Fool recommends Celldex Therapeutics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.