Aimmune Therapeutics Inc (AIMT) -- a California-based biotechnology company -- recently made history. The company's drug Palforzia became the first treatment for peanut allergies to be approved by the U.S. Food and Drug Administration (FDA). Naturally, investors received the news well, with Aimmune Therapeutics' shares rising by more than 6% on the heels of this announcement.

Over the past 12 months, shares of the company are up by 14%. While this performance trails that of the S&P 500 -- which is up by 23% over the past year -- with the recent approval of Palforzia, it's worth wondering whether Aimmune Therapeutics can provide strong market returns from here. 

The market opportunity for Palforzia

Palforzia is currently Aimmune Therapeutics' only approved product, but the peanut allergy drug has some serious potential. Peanut allergy is the most common type of allergy affecting children in the U.S., with more than 1.6 million children and teens affected. Further, this condition has been on the rise for many years: There was a 205% increase in the incidence of peanut allergy between 2001 and 2017.

Also, peanut allergy can have life-threatening ramifications. In other words, the market opportunity for Palforzia looks exciting. Palforzia is not indicated for the treatment of allergic reactions, but the drug increases patients' tolerance to peanuts.

A doctor in a lab coat with a clueless expression on his face and hands and arms raised in the air

Image source: Getty Images.

While the U.S. market opportunity for Palforzia seems enticing, there is an even larger opportunity worldwide since peanut allergy is just as prevalent in other parts of the world. The company is currently awaiting approval for Palforzia in Europe, where the condition affects about 17 million people. Peanut allergy has also been on the rise in Europe, with its instances of the condition doubling between 2005 and 2015.

Aimmune Therapeutics submitted a marketing authorization for Palforzia to the European Medicine Agency (EMA) in June 2019, and the company should receive the green light (if the EMA approves Palforzia) sometime this year.

Beyond Palforzia

Aimmune Therapeutics' treatment for peanut allergy was, according to the company itself, just the starting point. To quote the company's CEO, Jayson Dallas:

We view this approval [of Palforzia] as just the beginning for Aimmune, and it underscores our continued commitment to bringing innovative treatments to people with potentially life-threatening food allergies. 

With its focus on "developing oral treatments for life-threatening food allergies," Aimmune Therapeutics is going after other targets. For instance, the company's product AR201 is currently being evaluated for the treatment of egg allergy. Also, the company is looking to develop a product for the treatment of tree nut allergy. However, both of these are merely distant goals at this point.

AR201 is still in phase 1/2 testing, whereas the company's potential treatment for tree nut allergy hasn't even received approval to start clinical studies yet. In other words, these products won't hit the market anytime soon -- that is, if they ever make it past the grueling regulatory and clinical hurdles in the first place.

A risky play

There's no question that the approval of Palforzia lends more credence to Aimmune Therapeutics' project to become a leader in the market for treatments of food allergies. However, the company remains a risky play; here's why. First, Aimmune Therapeutics' crown jewel may face stiff competition soon. DBV Technologies (DBVT -0.65%) is another biotech company going after peanut allergy. DBV Technologies submitted Viaskin -- a potential treatment for peanut allergy -- to the FDA in October 2019, and a decision is expected in the second half of this year. 

Viaskin is a skin patch that gradually exposes children between the ages of four and 11 with an allergy to peanut to increased amounts of peanut protein through the skin. The goal is to stimulate the immune system, which could lead to an increase in children's tolerance to peanut. In a phase 3 clinical trial, about 76% of children increased their tolerance to peanut after three years thanks to Viaskin.  

If Viaskin receives the green light from the FDA, it will eat up some of the market share that would have otherwise gone to Palforzia. Second, given that Aimmune Therapeutics' other potential drugs are still in their early testing phases -- at best -- we're still many years away from the company having other products from which it can profit. For those reasons, investing in Aimmune Therapeutics seems quite risky, and for those uncomfortable with the risk, there are other biotech stocks to choose from.