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Development phase pharmaceutical companies offer investors a unique combination of risk and reward. Very few sectors can offer the potential of gains of many hundreds of percents, while having an even greater chance at failure with one-day losses over 80% being commonplace. Although different investment styles have been developed by investors hoping to capitalize on the upside possibilities, the odds are against them due to the many poor choices to glean through. According to DiMasi at the Tufts Center for the Study of Drug Development, the sector has even more risk than I had even imagined. Data collected from 2003 to 2010 encompassing 4,275 drugs and 7,300 indications were highly revealing. According to the study the probability of regulatory approval from various stages of development is as follows: Phase I - 9%, Phase II - 15%, Phase III - 44%, and upon submission for marketing - 80%. Although much of this data is a bit outdated, the same concept holds to be true: Although substantial gains can be made, the downside risk keeps these investments out of many investors' portfolios. According to this data and based on my own experience investing in the sector now for over 7 years, the chance of successfully navigating and profiting from investments in this sector is dismal without much preparation via thorough reviews of clinical data, understanding the companies' financials, considering trial designs, deciphering chart technical analysis and a certain degree of good fortune.

With all the possibilities out there for investment consideration, the task of making wise choices can often seem insurmountable. Below are some candidates for your consideration. While few, or perhaps none of these candidates could experience regulatory and subsequent marketing success, each offers huge upside potential while balanced by downside risk. However, money can be made even via investments in companies doomed to fail with well thought out entries and exit plans before making the initial investments. I believe that wise use of stop limits, exits before major binary decisions (FDA decisions, for example) and minimizing risk by reducing exposure during high-risk data releases are keys to maximizing gains while minimizing losses. With each candidate presented, I advise much more research as this article is intended to only be the beginning of your due diligence into these promising possibilities.

Inovio Pharmaceuticals' (INO) one year chart is one of extremes, with a 52-week range of $0.38-$0.83. The company has an innovative and promising pipeline of synthetic vaccines designed to address large market indications ranging from infectious diseases to cancer. The vaccines are administered by the company's proprietary electroporation device that utilizes electrical currents to increase the porosity of the targeted cells' membranes, enhancing uptake of the pre-injected therapies and consequently increasing effectiveness. Unlike typical vaccines, especially those for infectious diseases, Inovio's are not comprised of weakened or dead versions of the targeted disease. Termed its SynCon® vaccine platform, the company's vaccine is actually a plasmid DNA fragment encoding a selected antigen that is inducted into the electroporated cells' interiors where the cells are then instructed to produce large amounts of the antigens the DNA is encoded for. These antigens are chosen to be specific for multiple strains of the targeted pathogen. Like typical vaccines, the antigens produced stimulate an immune response targeting these antigens, whether they're the ones expressed by Syncon®'s modified cells or the ones on the targeted cancer cells or pathogens - creating a learned immune response via antibodies and/or T-cell responses. As pertaining to the platform's targeting of infectious diseases or cancer, the antigens expressed are not specific to one strain of the pathogen, but to multiple strains thereby preventing the strain from evolving into a form resistant to the body's learned immune response.

On March 18th, Inovio released its 2012 10K financials and company update. The update was revealing as it listed its current pipeline which helps to ascertain catalysts for 2013 and beyond. The company listed the following as in planning stages, with trial enrollment to follow sometime in the future: a Phase I trial of INO-5150 for prostate cancer and a Phase I trial of its hepatitis C (HCV) vaccine with VGX International (KRX: 011000) as the sponsor. However, the bigger catalysts will be from trial updates on clinicals already underway: a Phase I trial of INO-5150 as a universal influenza vaccine with the National Institute of Health (NIH) as the sponsor, a Phase I preventative HIV vaccine trial of PENNVAX®-B with US MHRP/NIH/NIAID as the sponsors, a Phase II trial of its acute and chronic myeloid leukemia vaccine sponsored by University of Southampton/LLR and CRUK, a Phase II trial of VGX-3100 for Cervical dysplasia, and a Phase II trial of an HCV vaccine with ChronTech as the sponsor using a combination of ChronTech's HCV antigen construct and Inovio's MedPulser® DNA Delivery System (Inovio's electroporation administration device).

While investors await interim/final results from either of these trials, they should consider the large markets each of these addresses with much to gain if either product candidate can navigate the regulatory paths successfully. Since the March 18th 10K release, ChronTech did report out interim Phase II data using its antigen and Inovio's MedPulser® DNA Delivery System. On April 2nd, ChronTech reported the open label trial data noting "These initial results do not show a statistically significant difference so far between treatment outcomes of the vaccinated and non-vaccinated groups. The vaccinated group did display an excellent safety profile." With ChronTech's own vaccine being used in the study, the data in no way represented Inovio's SynCon® technology. Nonetheless, investors panicked and shares sold off from the previous day's close of $0.565 to lows on April 2nd of $0.49, and closing the day at $0.52, down almost 8% due to the ill-conceived association. Shares have since recovered and closed Friday at $0.593 with the company's market capitalization at about $107 million.

On April 18th, Inovio announced early stage data that indicated validation of its SynCon® vaccine platform. The company's Phase I trial of its SynCon® universal H1N1 influenza vaccine indicated "proof of concept" with the vaccine generating protective antibody levels comparable to that of an FDA-approved seasonal influenza vaccine against a currently-circulating strain of influenza. This is the first data supporting the SynCon® system against infectious diseases and should garner the company much interest moving into the next expected trial data releases. If data remain supportive of efficacy with a solid safety profile, Inovio shares could see solid upside with the large indications of infectious diseases and cancer being targeted.

With a great many catalysts ahead, time will only tell how Inovio's platform of vaccines for both infectious diseases and cancers will progress. Perceived success in either type of vaccine could be huge for the fledgling biotech, while downside is hedged somewhat as the cancer and infectious disease platforms will likely not validate or invalidate each other as data is presented. Inovio had approximately $5.6 million in cash and equivalents as of December 31st, 2012. The company stated in the 10K that this would be enough to fund its operations into 2014. However, on March 12th the company closed on a stock offering with warrants that will provide the company with an additional $15.1 million. Depending on cash burn rate, this should be enough to fund the company through 2015 and greatly reduces the need for additional funding (shareholder dilution) for quite some time, removing one possible negative event. Whether there is actual or perceived success and/or failure in any of its upcoming clinical trials, 2013 could be an exciting year for Inovio and its shareholders.

Vical Incorporated (NASDAQ:VICL) shares have been on a bullish tear in 2013, rising from December 28th's closing lows of $2.75 to Friday's close of $3.63 for a gain of about 32%. Vical's platform focuses on fighting cancer through a gene-based therapy via insertion of DNA into plasmids which are then injected into solid tumors. Like Inovio's SynCon®, once the DNA is incorporated into the cells' interiors, the cells begin producing compounds that elicit an immune response. The parallels between the two companies, not evident to me before I began my research, are interesting with both companies addressing large market indications in cancer and infectious disease. A good update of Vical's current clinical progression can be found in its 2012 10K released on February 15th. With multiple partnerships in the company's growing pipeline, Vical is tackling one clinical as the lead developer - Allovectin® in a Phase III trial as a first-line treatment for metastatic melanoma. Vical is partnering with Astellas (OTCPK:ALPMY) with two trials in planning: TransVax™ therapeutic vaccine for cytomegalovirus readying for a Phase III trial (CMV infection after stem cell transplants) and TransVax™ therapeutic vaccine for cytomegalovirus readying for a Phase II trial (CMV infection after solid organ transplants). Additionally, it is partnering with AnGes on Collategene angiogenic therapy encoding Hepatocyte Growth Factor readying for a Phase III trial to evaluate the therapy in inducing local growth of blood vessels to restore blood flow to limbs affected by critical limb ischemia (NYSE:CLI); with Novartis' (NYSE:NVS) Aqua Health division market Canadian-approved Apex -IHN prophylactic vaccine for infectious hematopoietic necrosis virus to prevent infection and disease in farm raised salmon when exposed to infected wild salmon (hey, it's revenue); and with Merial for the U.S. approved ONCEPT therapeutic cancer vaccine encoding human tyrosinase as an adjunct treatment to increase survival time of dogs with oral melanoma. Vical also has two government collaborations with trials underway: a prophylactic and/or therapeutic HIV vaccine to prevent and/or treat infection, disease, and/or viral shedding in a Phase IIb trial with the National Institutes of Health (NIH) as the lead developer, and a Tetravalent dengue vaccine for the prevention of dengue disease caused by all four dengue serotypes with the Naval Medical Research Center as the lead developer.

With a large number of trials underway for diverse indications, Vical has many "shots on goal" moving forward. Its most anticipated trial data and the largest share price mover, whether up or down, is from its lead product candidate that it is developing on its own, Allovectin®. The therapy is hybrid plasmid/lipid formulation containing DNA sequences encoding HLA-B7 and ß2 microglobulin, which together form a MHC Class I complex. The therapy is injected into solid tumors and works via several mechanisms to have local and systemic immune responses against any tumors with the expressed MHC class I antigen. Phase II data were impressive with data indicating 15 patients having responses among the 127 patients that received the higher dose (11.8 %), with 4 of the patients having complete responses and 11 having partial responses. While 11.8% seems sparse, investors should consider the targeted patient set, patients with stage III or stage IV melanoma who have few other treatment options. With no grade 3 or 4 adverse events among the group, the safety profile was described as "excellent". The Phase III trial design is based on the FDA's recommendations at an End-of-Phase II meeting, and is a Special Protocol Assessment (SPA) design meaning that if the trial meets guidelines pertaining to trial design, endpoints and data analysis, data would be suitable for regulatory approval. In the 2012 10K, Vical noted "The trial is currently in the final stages of patient follow-up, data collection and analysis, which is expected to be completed in 2013." On the clinicaltrials.gov website, the last revision for the trial was made in January 2013 with an estimated study completion date of August 2013 noted.

Vical's market capitalization at markets close on Friday was just over $318 million, with much of that attributed to the Phase III Allovectin® trial. Poor results on this trial could be devastating for the company's share price. However, Vical has many trials in development with solid data backing many in earlier trials. If Allovectin® proves to be promising; the upside could be solid, with 52-week highs of $4.74 being pushed aside, over 30% above current share price. For those not wishing to hold a long position through the trial data release, entry at any dip if the data are positive could still yield gains as investor interest would likely increase, especially as the company's bustling platform comes to light. If Allovectin® fails, the resulting share price selloff could create solid entry moving forward as the company has many catalysts that could gain investor confidence once again.

Vical's many partnerships mean that clinical costs are shared or even shouldered by its collaborators. This helps to reduce dilutive offerings and other negative share price events. The company had cash, cash equivalents, marketable securities, and long-term investments, including restricted securities, totaling $86.1 million as of December 31, 2012. Vical has an additional shelf registration in the amount of $150 million to be used as needed as well as a $50 million At-The-Market Equity (ATM) Offering Sales

Agreement with Stifel. Added together, the company noted in its 2012 10K that the funds would be enough to support operations through "at least December 2014". Although the funds are available to Vical, the $150 million shelf may or may not have favorable terms, depending on investors' take of the company's future. If the Phase III data for Allovectin® are positive, an offering after that data is presented would obviously be at a higher share price, while one lower would utilize more shares and thus be more dilutive. There are many variables to consider with regard to Vical in 2013, but the many trials ongoing do give way to more catalysts coming and increased investor interest. I advise interested investors do much additional research and consider the downside very carefully in this exciting company.

CytRx Corporation (NASDAQ:CYTR) is yet another development stage pharmaceutical with a potentially exciting year ahead. The company's entire pipeline is focused on oncology using three chemotherapy agents Aldoxorubicin, Tamibarotene and bafetinib, with likely catalysts coming from each trial in 2013. While having a rocky year behind it with regard to share price for investors, 2013 has been a bit more promising with the company's common shares up over 48% from December 31st's 1.87, closing Friday at 2.77. Aldoxorubicin utilizes the already approved doxorubicin to fight cancers. However, the commonly prescribed active ingredient is conjugated with an acid sensitive linker known as EMCH in Aldoxorubicin. This acid linker helps the molecule to bind with circulating albumin once injected, where it remains bound until it accumulates in the cancer tumors, as albumin has been shown to do. Once reaching the acidic tumor environment, the doxorubicin cleaves from the Aldoxorubicin molecule at the site of the tumor where it then is absorbed as free (and efficous) doxorubicin. A type of targeted chemotherapy, the efficacy is improved via the targeted tumor approach, which also leaves much less of the doxorubicin to circulate in the body, decreasing systemic exposure with an improved safety profile. Aldoxorubicin has four on-going trials in various stages of development: Phase I for Pharmacokinetic studies, Phase Ib for multiple solid tumors, Phase II for pancreatic cancer and a Phase IIb for first-line soft tissue sarcoma. The company has completed a Phase II trial evaluating Aldoxorubicin as a second-line treatment for soft tissue sarcoma, and is currently planning a pivotal Phase III trial.

With a great many possible catalysts ahead in 2013 in either of the Aldoxorubicin trials, a press release last Tuesday, April 23rd only had a temporary effect with shares trending back down to it current levels. The press release announced that the company had reached an agreement with the FDA for a SPA trial design for the upcoming pivotal Phase III trial with Aldoxorubicin for patients with soft tissue sarcomas who have relapsed or were refractory following prior treatment with chemotherapy. Like Vical's pivotal Allovectin® trial with the SPA designation, CytRx now has a solid trial design in hand by which to develop Aldoxorubicin in its hopeful march to regulatory approval. Per the SPA trial design, 400 patients will be enrolled at up to 80 sites worldwide to evaluate the drug's efficacy and safety in patients with relapsed or refractory soft tissue sarcomas. The primary endpoint of the trial will be progression free survival (NYSE:PFS), with secondary endpoints of overall survival and safety. Enrollment initiation of this trial and interim updates of the 1:1 randomized study will be major catalysts for the company's share price moving forward and events investors should monitor closely.

Tamibarotene is an oral synthetic retinoid designed to overcome chemotherapy resistance and reduce the toxic side effects of differentiation therapy with all-trans retinoic acid (NASDAQ:ATRA), part of the current first-line treatment for acute promyelocytic leukemia (NYSE:APL). With skin toxicities being a major adverse event in ATRA treatments for APL, Tamibarotene does not bind the RAR-g receptor, the major retinoic acid receptor in the dermal epithelium, which the company believes should lessen the severity and occurrence of these skin toxicities. Although CytRx has a SPA in place with the FDA for a Phase II registration trial termed the "STAR-1" to evaluate Tamibarotene's efficacy and safety of Tamibarotene as a third-line treatment for APL, the company is not currently enrolling patients for the trial. Tamibarotene is being actively developed via a Phase IIb trial for non-small cell lung cancer (NSCLC). The trial's primary objectives will be objective response rates and PFS with secondary objectives of overall survival, quality-of-life and the pharmacokinetics of the drug in vivo. The trial has reached its enrollment of 140 patients, with interim data pending.

CytRx's third candidate in development, bafetinib, has already completed a Phase II proof-of-concept trial to evaluate the efficacy and safety of the orally bioavailable inhibitor of several Src kinases in patients with high-risk B-cell chronic lymphocytic leukemia (B-CLL). While data were promising, they were not overly impressive, and the company has since tabled the drug's development to more fully focus on Tamibarotene and Aldoxorubicin. However, the drug is not dead as there is much development yet to pursue, and CytRx is seeking a partner to help shoulder costs for the clinicals before moving forward on it. The company has worldwide rights to the drug, except for in Japan where its creator, Japanese pharmaceutical company Nippon Shinyaku, has all rights. So any number of partnerships, licensees or outright sale of the drug is possible.

Friday's closing price of $2.72 represents a market capitalization of about $83 million. I believe the upside from here could be substantial with real or perceived success in either of its clinicals, particularly the Phase III Aldoxorubicin trial. CytRx s 2012 10K is very informative and gives much detail into the company's pipeline and its financials. As of December 31st, 2012 the company had cash and equivalents of approximately $14.3 million with short-term investments of $24.0 million and a projected expenditure of $25.2 million in 2013, or $2.1 million per month on average. Based on that burn rate, CytRx has enough cash to fund its operations through 2014 if it chooses to cash out its short-term investments soon or until early 2H 2013 should it choose not to. With two relevant drugs in development, the downside is a bit protected from a large stock selloff, except for the lead product candidate, Aldoxorubicin in the Phase III for relapsed or refractory soft tissue sarcomas, likely accounting for at least half of the company's $85 million market capitalization. With the smallest market capitalization of the three presented companies, and the smallest targeted market groups in its clinicals of the three, the investment is the highest risk of the three with more volatility likely implied. However, the company's science appears to be solid, and promising interim data in the Phase III could be a huge share price moving forward, with the obvious downside also needing to be taken into consideration.

Source: A Tale Of Three Pharmaceuticals: Getting Exciting In 2013