Investing in clinical-stage biotech stocks is risky. While positive results from clinical trials can send shares flying, the probability of a newly developed drug successfully making its way through all phases of the clinical trial process and earning regulatory approval is low. Still, picking the right biotech stock early enough can prove highly lucrative in the long run.

With that in mind, here's one biotech stock I think investors would do well to keep an eye on: Provention Bio (NASDAQ:PRVB). This company has performed more or less in line with the broader market year to date, and it could have a bright future.

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Big ambitions

Provention Bio focuses on developing drugs for the prevention of certain diseases. The company is going after several targets, but its most exciting pipeline candidate is undoubtedly PRV-031 (teplizumab), which the company is developing for the delay of Type 1 diabetes (T1D). Results from Provention Bio's clinical trials for this drug speak for themselves.

In June 2019, the company released data from a phase 2 study for PRV-031. The trial enrolled 76 individuals who were at risk of developing T1D, and each patient received either PRV-031 or a placebo. The study found a 14-day course of PRV-031 delayed the onset and diagnosis of T1D by a median of two years compared to the placebo.

More recently, Provention Bio released updated data showing that its most advanced pipeline candidate was able to delay the diagnosis of T1D by a median of about three years, which is even better than the previously reported median of two years. Note that the U.S. Food and Drug Administration (FDA) granted PRV-031 a breakthrough therapy designation.

Smiling pharmacist standing inside a pharmacy with her arms crossed.

Image source: Getty Images.

This high honor is reserved for drugs that meet certain criteria, including the potential to treat a severe condition, and the clinical data to back up their ability to treat said condition successfully. Based on last year's phase 2 results alone, Provention Bio had already decided to initiate a rolling submission for a Biologics License Application (BLA) for PRV-031 for the delay of T1D in at-risk patients.

The company officially started this process back in April, and Provention Bio expects to complete the submission of its BLA by year's end. Given PRV-031's impressive data in clinical trials, it seems very likely that Provention Bio will earn regulatory approval for this drug sometime next year. It is also worth noting that the market opportunity for PRV-031 is exciting. There are 64,000 new diagnoses of T1D every year in the U.S. alone, and about 300,000 people at risk of progressing to T1D. 

Provention Bio estimates that the market opportunity for PRV-031 for the prevention of T1D in at-risk patients is greater than $1 billion. The company is also hoping to earn regulatory approval for PRV-031 as a treatment for newly diagnosed T1D patients, and it's developing a potential vaccine for T1D called PRV-101. With all these potentially lucrative opportunities ahead, Provention Bio is worth keeping an eye on. 

Provention Bio's financial position

Like many clinical-stage biotech companies, Provention Bio currently has no approved products on the market and does not generate any revenue. During the first quarter, the company recorded $12.9 million in operating expenses, and had a net loss of $12.6 million. Also, the company had a cash and cash equivalents balance of $76.6 million as of March 31.

Given its financial position at the end of the first quarter, it's not too surprising that Provention Bio opted to raise money through a public offering of common stock. In a round of fundraising that closed on June 22, the company sold 7.6 million shares of its common stock for $14.50 per share. Provention Bio raised gross proceeds of $110.1 million through this transaction. Given this, I don't expect the company to dilute shareholders again anytime soon.

Should you buy?

Thanks to its impressive results in clinical trials (and the fact that it addresses a serious unmet need), Provention Bio's PRV-031 will likely earn FDA approval and become a highly successful product. The company could then go on to develop and market several other products for the prevention (or delay) of serious conditions. Although a lot could still go wrong for Provention Bio -- biotech stocks are, after all, notoriously volatile -- I think the company is worth serious consideration.