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Source: Food and Drug Administration via Facebook.

If there is such a thing as a poster child for volatility in the stock market, the biotech sector would likely take top honors.

Biotech stocks are unique. While stocks in other sectors are typically valued based on their past performance and future earnings potential, the majority of biotech stocks don't have a cent in recurring revenue. Instead, biotech stocks are (typically) valued by Wall Street and investors based on the peak annual sales potential of their key pipeline products. This valuation allows some degree of emotion and opinion to come into play, which can lead to wild swings in biotech stock share prices to both the upside and the downside.

A quick screenshot of the biotech sector through Finviz shows exactly this point. Out of the 333 listed biotechnology companies, 94 are down a minimum of 20% over the trailing 12-month period, while 45 have more than doubled and 116 overall have gained a minimum of 20% over the same time span.

But sometimes biotech stocks that have been pummeled by Wall Street can claw their way back and become the stars of investors' portfolios. However, weeding out those second-chance candidates isn't always easy.

Today we're going to look at three biotech stocks which are 50% or more off their five-year closing highs with the chance, in my opinion at least, to double in value. As always, understand that there are risks involved with any stock, and these aren't by any means formal recommendations to buy these companies. Consider this a jumping off point for you to begin or continue your research into the following three stocks.

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Source: Food and Drug Administration via Facebook.

1. Exelixis (NASDAQ:EXEL)
We'll go ahead and get the "homer" pick out of the way early with cancer drug developer Exelixis, a stock I currently own in my personal portfolio.

Exelixis' shares are a whopping 70% off their five-year closing high from early 2011. Shares crashed back to Earth after the company's COMET-1 study involving Cometriq failed to meet its primary endpoint of extending overall survival for metastatic castration-resistant prostate cancer patients. Prostate cancer is the second most commonly diagnosed cancer, so losing this indication was a pretty big blow to investors and Exelixis.

The good news is there are two major catalysts on the way before the year is out that could send shares soaring.

In the current quarter, Exelixis is expected to report phase 3 data from its METEOR study involving Cometriq for patients with advanced renal cell carcinoma. What's worth noting is that this study is focused primarily on progression-free survival (PFS), with overall survival just a secondary endpoint. In both the COMET-1 study and its medullary thyroid cancer study, for which Cometriq is currently approved, Cometriq handily met its PFS goals. Thus I suspect METEOR has a good chance of success.

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Source: Roche.

Next up, on or before Nov. 11, 2015 the Food and Drug Administration is slated to deliver its PDUFA approval or rejection decision on a new metastatic melanoma combo therapy involving Exelixis-discovered cobimetinib and Roche's Zelboraf. In both the phase 3 data reported in 2014 and the updated set of PFS data delivered at ASCO, the combo therapy handily trounced the monotherapy of Zelboraf in patients with advanced BRAF V600 mutation-positive metastatic melanoma. I'd predict an FDA approval here is better than a 50-50 chance.

If both catalysts fall Exelixis' way it may be able to resolve its shaky cash situation and head significantly higher.

2. XOMA (NASDAQ:XOMA)
A clinical-stage biotech company you'd be wise to keep your eyes on is XOMA, a developer of monoclonal antibodies with the primary purpose of treating inflammatory and metabolic disorders.

If there's one thing you need to know about XOMA, it's that its pipeline very much revolves around gevokizumab. With the exception of two preclinical diabetes programs and experimental insulin drug XOMA-358, the remaining one-dozen studies being conducted by either XOMA or its licensing partner Servier are based on gevokizumab.

If gevokizumab is a success, XOMA could be sitting on a gold mine. However, investors were warned in 2014 that XOMA may not have a fairytale ending. In March 2014, XOMA announced that it wouldn't be moving gevokizumab into late-stage development for the indication of osteoarthritis of the hand following disappointing midstage study results. Since this data release, shares of XOMA dropped exactly 50%. But they may soon be on the rise.

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Source: National Institutes of Health via Facebook.

XOMA recently announced that Servier's overseas study, the EYEGUARD-B trial for patients with Behcet's disease uveitis, had reached a sufficient number of events for the data to be analyzed. The press release quoted seven weeks as the timeframe needed to complete the analysis, which would place the possible data release this week. If gevokizumab meets its primary endpoint in EYEGUARD-B, it could validate the therapeutic benefit of the drug and give hope to investors that other ophthalmic indications will also find their mark.

Wall Street believes that peak annual sales estimates for gevokizumab could range from $1 billion to $3 billion if the drug is approved by the FDA and successfully launched. In other words, there's ample opportunity for upside here, and it all begins with a slew of clinical catalysts.

3. Threshold Pharmaceuticals (NASDAQ:THLD)
Finally, shares of clinical-stage biotech stock Threshold Pharmaceuticals are off by 53% from their five-year high as a long gap between data releases cooled investors' emotions surrounding this cancer drug developer.

Like XOMA, Threshold is very much all in on one drug -- in this case evofosfamide (previously known as TH-302). Evofosfamide is currently being studied in 10 different indications. Beyond those 10 indications, Threshold's pipeline is pretty thin.

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Analyst day presentation slide. Source: Threshold Pharmaceuticals. 

What makes evofosfamide such an exciting new therapy is its mechanism of detection. Evofosfamide is a hypoxic-targeting drug, meaning it targets concentrations of cells with low levels of oxygen. When tumors grow, they often outpace the growth of blood vessels, leaving some areas of a tumor starving for oxygen. In normal cellular growth hypoxia would be very rare. Thus, by targeting hypoxia, evofosfamide should be able to deliver a targeted dose to a tumor, improving patients' quality of life and possibly survival.

The crucial period will be 2016, when a slew of important clinical data is due. Arguably no study is being watched more closely than the phase 3 MAESTRO study for patients with locally advanced unresectable or metastatic pancreatic cancer. Pancreatic cancer is among the deadliest of cancers in terms of the number of lives claimed each year, and five-year survival rates are depressingly low, so a victory for Threshold here would be a big win for the company and pancreatic cancer patients.

Results from the MAESTRO trial and a phase 3 study for soft tissue sarcoma are expected in early 2016, with midstage studies for TH-4000 in non-small cell lung cancer and head and neck squamous cell carcinoma expected by mid-2016.

It's possible Threshold shareholders could be in line for a big run in the coming quarters.

Sean Williams owns shares of Exelixis, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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