Many investors stop looking for opportunities in tumultuous markets. They become paralyzed and make no changes at all in their portfolios…or they dump stocks and move to bonds or cash…or they seek out “defensive” stocks that have steady but unexciting prospects. But some intrepid investors do the opposite when the market gets rough—they take advantage of big opportunities that have been created in part by all the trouble.

Among the biggest opportunities in today’s beaten-down market are biotech companies that are working on breakthrough drugs. These drugs range from possible lung cancer and lupus cures to treatments for osteoporosis and Parkinson’s disease. If successful, the drugs have the potential to improve or even save millions of lives. If that happens, the stock prices of these companies could soar regardless of whether we are in a bear or bull market and regardless of whether we are facing a recession or continued economic growth. There’s plenty of risk, of course. If the Food & Drug Administration (FDA) delays approval or rejects a drug or if the drug is approved but sales are disappointing, the stock price will suffer.

In 2015, the FDA approved 45 new drugs, the most in two decades. And 225 are expected to be approved between 2016 and 2020. But few of them are blockbusters. To help investors identify the companies with drugs in development that are most likely to become big sellers, Bottom Line Personal spoke with biotech stock expert John McCamant.

Finding The Next Big Drug

Over the past several months, consumer advocates, legislators and even presidential hopefuls have criticized drug companies over soaring prices—which is among the factors that have badly hurt biotech stock prices overall. Despite this, I believe that pricing for effective new drugs will continue to be strong. Legislators are reluctant to actually cap the price of prescription drugs because that might slow the pace of drug breakthroughs. High prices for drugs, in many cases, allow companies to continue to fund ­lifesaving research…to shepherd treatments through clinical trials…and to win regulatory approvals.

The recent pullback in biotech stocks has made valuations of many of these companies more attractive. In addition, I look for these three elements…

At least one of the company’s drugs has blockbuster potential. That means enough potential demand to reach $1 billion or more in global annual sales within five years after the launch.

The drug or drugs should be close to winning FDA approval. The FDA requires biotech firms to pass three phases of clinical testing to prove that their drugs are relatively safe and effective, a process that can take as long as a decade. The sweet spot for investors is with ­companies that have drugs in Phase II or Phase III clinical trials…or those that have completed trials and are awaiting FDA approval. These drugs typically are one to three years from being available to the public—and the stock market has yet to realize their full potential.

The company has a pipeline of other new drugs in Phase I and preclinical ­trials. You improve your chances of success if you bet on a company with more than one drug with big potential.

My favorites now…

Acadia Pharmaceuticals (ACAD). Parkinson’s disease psychosis (PDP), a debilitating condition with symptoms that include hallucinations and delusions, afflicts 40% of Parkinson’s patients. There are no drugs approved by the FDA to treat it. Acadia Pharmaceuticals recently completed Phase III clinical trials for a treatment called ­Nuplazid. The FDA has classified the drug as a “breakthrough therapy,” which means that its timeline for review is accelerated and that the drug could be approved as soon as May 2016. Adding to the ­excitement is that Nuplazid has multiple potential uses beyond PDP. The drug completed Phase II trials for schizophrenia and is in Phase II trials for ­Alzheimer’s disease psychosis. ­Recent share price: $18.73.

Anthera Pharmaceuticals (ANTH). Blisibimod, which is in Phase III trials, is a novel treatment for lupus, which affects 5 million people worldwide. ­Lupus causes the body’s immune system to overreact. B-cells, a type of white blood cell that is supposed to fight infection, instead attack the body’s own tissues. Blisibimod works to inhibit the overproduction of B-cells. Anthera’s other Phase III candidate is Sollpura, a treatment for an inability to digest food caused by conditions such as cystic fibrosis and pancreatic cancer. Recent share price: $3.03.

Cellular Biomedicine Group (CBMG), which has its primary research and manufacturing facilities in China, is conducting late-stage trials for two different treatments using gene-therapy technology. These include Phase III ­trials for knee osteoarthritis in which stem cells that can repair tissue are removed from the patient, genetically altered to spur regrowth of cartilage, then reinjected into the knee…and Phase II trials in which a similar technology is addressing four different cancers—lymphocytic leukemia, malignant lymphoma, Hodgkin’s lymphoma and lung cancer. In each case, T-cells, a type of immune cell from the patient’s own blood, are reengineered to recognize and attack tumor cells. What really makes this company intriguing is that its founder, Wei Cao, PhD, a ­Harvard-trained scientist, is seeking approval from Chinese regulatory authorities as well as from the FDA. Recent share price: $17.55.

Novavax (NVAX). Respiratory syncytial virus (RSV), a common winter virus, has symptoms similar to a nasty cold, but it can be deadly for infants and for elderly people with chronic heart or lung problems. It kills up to 15,000 Americans annually and leads to more than 2 million hospital visits a year by children and $23 billion in hospitalization costs for seniors. Novavax is currently in Phase III trials for a vaccine to prevent RSV. It could be on the market by 2017 and have sales equal to the $4 billion a year spent on influenza vaccines. So far, Novavax’s vaccine has shown a much higher success rate than vaccines for the flu. That’s because vaccines for flu viruses are cultivated in eggs and can take several months to incubate, by which time the prevalent ­virus strain may have changed. Novavax’s process, which uses the genetic code of a particular strain to generate a vaccine in a laboratory, takes just 30 days, allowing the company to respond much faster to outbreaks. Recent share price: $4.71.

Sangamo BioSciences (SGMO). More than 35 million people have the HIV virus. Many need to take a daily cocktail of antiviral drugs for the rest of their lives—the cost of which is expected to rise to $17 billion globally by 2020. Sangamo BioSciences has a gene-therapy treatment, now in Phase II clinical ­trials, that might cure HIV with a single infusion. How it works: The HIV virus typically attacks T-cells, which are supposed to defend the body’s immune system, and uses the cells to reproduce itself and spread. Some people are naturally resistant to HIV because their T-cells are missing a particular protein that the virus needs. Sangamo scientists remove T-cells from patients and genetically ­alter them to stop producing the protein. The treated T-cells are injected back into the body and reproduce, preventing the HIV infection from ever growing. Recent share price: $5.46.

The 3 Phases of Clinical Trials

After a company tests a new drug on animals and living tissue for safety and effectiveness, the drug must pass three phases of clinical testing on humans to get FDA approval.

Phase I: Researchers test the drug on 20 to 100 healthy volunteers, administering very low doses to evaluate toxicity, how well the drug is processed by the human body and side effects. Phase I trials usually last six months or longer. Historically, 70% of drugs have been found safe enough to progress.

Phase II: The drug typically is given to several hundred patients who suffer from the condition that it is intended to treat. ­Researchers try to determine the effectiveness of the drug compared with that of a placebo and the optimal dosage. This phase typically lasts one year or longer, and about one-third of drugs pass.

Phase III: The drug is administered by physicians to hundreds or thousands of patients suffering from the condition. Its effectiveness is compared with that of drugs on the market. This trial can last two or more years, and 25% to 30% of drugs pass.

The time from possible approval to when the drug is marketed to consumers typically is six months to two years.