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3 Biotech Stocks That Turned $1,000 Into More Than $5,000 This Year

It's been a banner year for anyone who started 2017 holding shares of AVEO Pharmaceuticals, Inc. (NASDAQ: AVEO), XOMA Corporation (NASDAQ: XOMA), or Dynavax Technologies Corporation (NASDAQ: DVAX). All three of these stocks have risen more than 400% this year, and there are still a couple of months to go.

You should never buy stocks just because they're going up, but understanding why they spiked can help you decide if there's more upside ahead. Here's a closer look at what lit a fire under these rockets, and what needs to happen for their respective rallies to continue.

1. AVEO Pharmaceuticals, Inc.: Finally following instructions

This biotech stock took off this summer as a cancer pill the FDA rejected a few years ago finally made some progress in the EU. Years ago, the FDA didn't like the trial protocol underpinning tivozanib's application and asked the company to run another study to address these concerns.

The stock was hammered flat because management chose to keep investors in the dark and ignore the agency's request. Now that a new management team is producing the sort of data regulators wanted to see in the first place, though, investors have returned in force.

Aveo's price surged after tivozanib earned approval in the EU to be marketed as Fotivda for the treatment of kidney cancer. Although it's gained around 427% this year, the stock could get another big lift in the months ahead. To please U.S. regulators, the company is testing the drug in a head-to-head study against Nexavar that could throw off important data early next year.

Aveo's candidate recently passed the pivotal trial's pre-planned futility analysis. That means the trial will continue, but it wasn't the best possible news. Clinical trials with new cancer drug candidates that go on to be huge successes often show statistically significant survival benefits early enough to end trials immediately following interim analyses so patients in the control group can benefit as well.

With a handful of recently launched kidney cancer drugs to compete with, Fotivda's peak sales potential might not be huge, but neither is Aveo's recent market cap of about $337 million. A positive result from the ongoing pivotal study would lift the stock much further. With little else in the pipeline, though, another failure would probably crush it into dust.