Nothing provides greater stock price swings in the biotech sector than late-stage clinical trial results and drug approval decisions from the U.S. Food and Drug Administration. A recent research report from investment bank Jefferies (NYSE:JEF) listed key biotech events for the coming quarters, along with their potential upside and downside returns. Here we highlight four companies with market caps greater than $1 billion that could have the largest potential swings in stock price, according to the report.

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Esperion faces FDA approval decisions

Esperion Therapeutics (NASDAQ:ESPR) leads off with two important FDA approval deadlines slated near the end of February. At stake is the fate of its drug bempedoic acid, a treatment for lowering low-density lipoprotein cholesterol (LDL-C).

The FDA will weigh in by Feb. 21 on whether the once-a-day oral bempedoic acid should be approved to be used alongside other lipid-lowering medicines. Five days later, the FDA's Feb. 26 deadline occurs for granting approval (or not) of the combination of bempedoic acid and ezetimibe to lower LDL-C in patients with primary hyperlipidemia. 

Jefferies pegs the upside in the stock at 20% to 25% range for positive outcomes, while a negative decision could drop the stock as much as 50%.

Karyopharm to report phase 3 data

Karyopharm Therapeutics (NASDAQ:KPTI) expects to report pivotal phase 3 clinical trial results from its "Boston" trial with its drug selinexor in patients with multiple myeloma who have had one to three prior treatments. The Boston trial evaluates the benefit of adding selinexor to a combination of dexamethasone and Takeda Pharmaceuticals' Velcade compared to the two drugs by themselves. 

In July 2019, the FDA approved selinexor as a treatment for patients with multiple myeloma in combination with dexamethasone. That approval restricted selinexor's use to patients who had received at least four prior therapies. The Boston study, if positive, could support the use of selinexor much earlier in the treatment paradigm for multiple myeloma. Being a second-line or later therapy opens up a much broader treatable population than its current fifth-line setting. 

Jefferies highlights upside potential at 40%. Conversely, a negative outcome could crater the stock price by 60%. 

TG awaits phase 3 results 

Phase 3 clinical trial results from TG Therapeutics (NASDAQ:TGTX) provide another significant binary event for biotech investors. The UNITY-CLL trial is testing the combination of umbralisib and ublituximab in patients with front-line and relapsed or refractory chronic lymphocytic leukemia (CLL). According to market research firm GlobalData, the global CLL market will grow from $7.7 billion to $9.2 billion by 2027.

Both drugs belong to TG and work through known drug mechanisms. Umbralisib targets PI3 kinase delta and CK1 epsilon. PI3 kinase has four variants with the delta form implicated in CLL. Gilead acquired Calistoga Pharmaceuticals in 2011 for its PI3 kinase delta inhibitor that went on to get approved for late-stage CLL as Zydelig. Unfortunately, it never flourished due to side effects, posting only $26 million in U.S. and European sales last quarter. While TG believes it has engineered away the potential side effect issues, it faces stiff competition in CLL. Bruton's tyrosine kinase (BTK) inhibitors led by Johnson & Johnson's Imbruvica and AstraZeneca's Calquence outperformed the PI3 kinase inhibitors.

TG's ublituximab, a therapeutic antibody that targets CD20, aims to be the next-generation Rituxan, Roche's $9 billion-a-year drug for CLL and other diseases. TG engineered out sugars in the antibody structure, resulting in an alleged 50- to 100-fold increase in potency. The combination on paper makes sense. The efficacy and safety compared to the BTK inhibitors will determine the success of the treatment regimen.

An equivalent 40% to 50% stock reaction either up or down makes this the most even of the risk-reward trade-offs from Jefferies.

Will the FDA approve this non-opioid pain medicine?

Lastly, Heron Therapeutics (NASDAQ:HRTX) seeks an FDA approval of its novel pain drug HTX-011 by March 20, 2020. Heron developed HTX-011 as a treatment for post-surgical pain. This non-opioid pain treatment combines an extended-release version of a local anesthetic, bupivacaine, with a nonsteroidal anti-inflammatory drug, meloxicam.

HTX-011 works in the immediate aftermath of surgery for 72 hours, helping to limit the need to use opioid pain medications. The FDA has granted Fast Track designation, Breakthrough Therapy designation, and Priority Review, all of which signal HTX-011 could be a significant advancement for patients with unmet needs.

Jefferies believes that an approval may cause a 30% to 40% spike in the stock, while a negative decision could drop the stock 60% to 70%.

There you have it – two phase 3 trial data announcements and two FDA decisions accompanied by odds from a leading investment bank in the sector. Investing in biotech remains inherently risky and the downside is often more severe than the upside on good news. But, if investors play it right, out-sized returns can be generated by owning stocks through these key events.