Source: Food and Drug Administration via Facebook.

The stock market may not go up in a straight line, but over the long run it tends to have far more positive years than negative years -- and some growth sectors do especially well in long bull markets. One such sector that has a history of greatly outperforming during long bull markets is biotechnology.

Biotech stocks are unique in that most aren't valued by traditional fundamental metrics. In fact, a vast majority of these companies are losing money, so trying to value the sector based on metrics such as P/E or price-to-book value would result in some really misleading valuations. Instead, biotech stocks tend to be priced according to the results of binary events such as clinical trial results and the peak sales potential of their product portfolios and pipelines.

The upside to this methodology is that investors can profit from a company long before a drug ever makes it to pharmacy shelves. Few investors look as far into the future as a biotech investor.

On the flipside, emotions and speculation run high in the biotech sector, which can lead to increased volatility. And the odds of preclinical or even clinical drugs making it to market aren't in biotech companies' favor, either, so there's always as much (if not more) potential for a share price haircut as there is for a big pop.

Biotech investment opportunities for the long term
Still, biotech can offer investors substantial long-term gains if they're willing to put in the research. Today we'll take a brief look at a handful of biotech investment opportunities for the long term for investors with an array of risk tolerances.

For our research we'll break this down into three categories:

  • Investors who are generally risk-averse
  • Investors who have a medium level of risk tolerance
  • Investors who aren't bothered by risk

Although one thing worth noting before we get into our discussion is that risk is looked at a bit different in the biotech sector. What might be considered low-risk here is probably medium-risk in another sector. Likewise, a medium-risk biotech stock could easily be construed as high-risk in another sector. So take these assigned "risk levels" with that thinking in mind -- the sector as a whole carries an elevated amount of risk.

A biotech investment opportunity for the risk-averse
The biotech sector may have a tendency to outperform during bull markets, but it also has a habit of vastly underperforming in bear markets. It's for this reason that biotech stocks may not be for everyone. For those investors who do want exposure to the sector, but who also have a pretty low tolerance for volatility, the smartest move is going to be to stick with companies with established product portfolios and deep pipelines.

Source: Isis Pharmaceuticals via Facebook.

Celgene (NASDAQ:CELG), for instance, is reliant on its drug trio of Revlimid, Abraxane, and Otelza to drive growth. Revlimid is a blood cancer drug currently responsible for about two-thirds of Celgene's total sales, while cancer drug Abraxane is nearing blockbuster status. Otezla is a more recently approved anti-inflammatory product.

What makes Celgene so unique is its ability to exploit its organic opportunities and collaborations. Celgene is currently looking to expand Revlimid to eight new indications, and it's angling to move Otezla into a half dozen new indications in the coming years. With well-established safety profiles, label expansions like these can be a quick way to easy profits.

Additionally, Celgene has in the neighborhood of 30 collaborative partnerships across a wide range of therapeutic indications. If even a few of these partnerships pan out, they could equal substantial returns for Celgene. Although Celgene doesn't pay a dividend, it did generate $3.1 billion in operating cash flow over the trailing 12 months, which is sure to satisfy any risk-averse investors as much as any biotech can.

A biotech investment opportunity with moderate risk
Investors who are investing for the long run but who have a bit more of an appetite for risk and volatility would be wise to take a closer look at Isis Pharmaceuticals (NASDAQ:IONS)-- which, as a reminder, would be more of a high-risk bet if we're looking at the overall market, but is middle-of-the-line risky in the world of biotech. 

Isis Pharmaceuticals belongs to the nearly 90% of biotech companies that are currently unprofitable, and chances are it'll remain unprofitable for years to come. But Isis possesses something few other biotech companies can boast: a pipeline that's more than three-dozen drugs deep.

Source: Isis Pharmaceuticals via Facebook.

Isis' antisense drug development platform allows it to research drugs with the understanding that many of the results witnessed in previous studies will be replicable in future studies. This allows for quicker drug development than traditional platforms. Isis also claims to be able to manufacture its products at a lower cost than traditional drugmakers.

Currently Isis has just one drug approved by the Food and Drug Administration, Kynamro, which treats a genetic high cholesterol condition. Sales of Kynamro haven't exactly impressed thus far, meaning Isis still has some work to do to demonstrate to shareholders that its antisense platform is a long-term winner. 

Think about Isis Pharmaceuticals as if it's a batter in a home run hitting contest. It's probably not going to hit a home run on each of roughly three dozen pitches, but if it can knock just a couple out of the park -- specifically, develop a few blockbuster drugs capable of $1 billion or more in sales -- then it'll be successful.

About two-thirds of Isis' experimental drugs are also partnered. These roughly one dozen licensing or development partners bring ample upfront payments and milestone revenue to the table, allowing Isis the ability to progress its clinical studies without diluting existing shareholders. It also demonstrates just how easily Isis Pharmaceuticals can monetize its drug development platform if need be.

With the ability to bring around five new compounds into clinical testing per year, this drug development machine could be the perfect investment opportunity for the moderate-risk investor.

A high-risk biotech investment opportunity for the long term
Last, but certainly not least, there are long-term opportunities available for investors who have a very high tolerance for risk (generally younger investors who have the time to take more risks).

I might be biased since I own it, but for risk-tolerant investors I'd recommend looking into Exelixis (NASDAQ:EXEL).

Source: Roche.

Exelixis has just one drug currently approved by the Food and Drug Administration, Cometriq, which is used to treat a rare and aggressive form of thyroid cancer. By itself this indication won't get Exelixis anywhere near profitability. Instead, everything is riding on Cometriq's ability to gain additional indications, and on experimental drug cobimetinib being approved for various cancer indications.

Exelixis' development history is certainly a bit rocky. Its COMET-1 study involving Cometriq for metastatic castration-resistant prostate cancer failed to meet its primary endpoint, causing Exelixis to be crushed last year. However, there are other possible indications for Cometriq that could be quite successful.

The METEOR study, which Exelixis should be reporting on within the next couple of months, may show a benefit for patients taking Cometriq in treating advanced renal cell carcinoma. A delay in reporting its study results, which was announced during the company's Q1 earnings release, could signify a number of things, including that the progression-free survival in the Cometriq arm of the study was better than expected. Beyond METEOR, Cometriq is also being studied as a treatment for advanced hepatocellular carcinoma in the CELESTIAL trial.

Exelixis also has a combo therapy under review by the FDA that involves cobimetinib and Roche's Zelboraf as a treatment for BRAF V600 mutation positive advanced metastatic melanoma. Boasting a priority review and meeting its primary endpoint in the co-BRIM study, there are high hopes that cobimetinib will soon be approved.

Exelixis is no cakewalk for long-term investors, but for those willing to take on high levels of risk it offers an intriguing reward-versus-risk opportunity.