May isn't in the books yet, but three health-care stocks have shot to the stratosphere. Unsurprisingly, the month's top gainers are all from the biotech space, but not all are small-cap companies. Let's take a moment to reflect on their dramatic moves, and which one has the most room to keep running, over the holiday weekend.

Company

May Gain

YTD Gain

Market Cap

Source: Yahoo! Finance as of 5/24/12.

Obesity drug makers have been on a tear, as it appears the FDA is softening its hard-line stance against a lifestyle drug who's counterpart, diet and exercise, has few adverse effects. Arena has been the biggest winner, but competitor Vivus (Nasdaq: VVUS) is up 154% while Orexigen (Nasdaq: OREX) has seen a 113% gain year-to-date. All three received rejections from the FDA, but on their second go-round both Arena and Vivus sailed past their advisory panels with 18-4 and 20-2 recommendations for approval, respectively. Vivus' approval date was pushed back three months as the company had to file a new risk mitigation strategy giving Arena a chance to get to market first. However, a few short months head start shouldn't determine the winner. That will come down to which drug doctors prefer prescribing given their efficacy and side effects.

Vertex is on a roll. It seemed just as investors grew concerned the sun was already setting on its blockbuster Hepatitis C drug Incivek, thanks to advanced next-gen drugs close to approval like Gilead's, Vertex showed it was no one-trick pony. By combing approved cystic fibrosis treatment Kalydeco with experimental drug VX-809, Vertex was able to expand its use from a mutation seen in 4% of CF patients to one in half and report a successful phase 2 trial. Kalydeco is the only drug that treats the underlying condition, and unlike Hepatitis C, cystic fibrosis patients aren't cured by taking the drug, creating a sustainable revenue stream. Now, VX-809 has a long way before possible approval, but investors' enthusiasm is not misplaced about this potential blockbuster.

Finally Xenoport, which has tumbled as much as 68% since getting Horizant approved, has seen a recent resurgence. The restless leg syndrome drug failed to launch as expected, leading to infighting between Xenoport and partner GlaxoSmithKline. Investors also got caught up in the first drug approval enthusiasm, neglecting the fact that Horizant was going up against cheap generic competition, but the pendulum may have swung too far the other way. The company is inching closer to profitability and has a sparkling balance sheet with $85 million in net cash and less than $8 million in cash burn the past 12 months. It also recently filed an investigational NDA for a potential multiple sclerosis treatment, although investors should not assign much value to that drug until it progresses further.

While all three of these stocks have room to run, Arena is the likeliest winner if it gets FDA approval, but that is easier said than done, and it faces a tough competitor in Vivus. I'm always leery of investing in small-cap biotechs like Xenoport struggling to launch a drug and running higher on no news. Vertex is the safest play of the three. It is a cash cow with approved drugs and a pipeline filled with phase 2 candidates, not to mention the chance to completely dominate the CF market. However, investors may want to wait for a pullback before picking up shares.

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3 Health-Care Stocks Crushing the Market