Biotech companies have lots of industry-specific risks to navigate. These include potential regulatory roadblocks and negative results from clinical trials. No company wants to discontinue the development of a drug after having spent millions of dollars on the project. But where there is risk, there is potential reward: Shares of a biotech stock can skyrocket on positive regulatory or trial news. 

That's why it may be worth it for investors to keep an eye on drugmakers that are awaiting decisions from the U.S. Food and Drug Administration (FDA), particularly if the drug being reviewed for approval would be a game-changer. With that in mind, let's look at two companies that find themselves in this exact situation: Provention Bio (PRVB) and Biogen (BIIB 0.10%).

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1. Can Provention Bio disrupt the diabetes market?

Provention Bio focuses on developing drugs that can prevent life-threatening diseases. The company's leading candidate is PRV-031 (teplizumab), a medicine that could delay the onset of type-1 diabetes (T1D) in at-risk patients; no such approved drug exists at the moment. In a phase 2 clinical trial, a 14-day course of PRV-031 delayed the onset of T1D by a median of about three years compared to the placebo. The company initiated a rolling submission to the FDA for PRV-031 in April 2020.

A rolling submission allows a company to submit completed parts of its Biologics License Application (BLA) for review instead of submitting the entire application all at once. Provention Bio completed this process in November. In early January, the biotech announced that the FDA had accepted its application and had granted PRV-031 priority review. The regulatory authority set a PDUFA goal date of July 2.

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The diabetes market is huge. According to the U.S. Centers for Disease Control and Prevention (CDC), some 34.2 million Americans suffer from the illness, while 88 million have prediabetes. While some 90% to 95% of cases of diabetes are of the type 2 variety, Provention Bio still sees a market opportunity of more than $1 billion in the U.S. alone for its indication. And given the excellent results displayed by the drug in clinical trials, it looks very likely to earn approval.

I think there is a good chance that PRV-031 will achieve blockbuster status. This drug's approval would also validate Provention Bio's masterplan to develop drugs to prevent severe illnesses. The company has other products in its pipeline, including one being investigated for the prevention of systemic lupus erythematosus. Given the large market opportunity for its leading candidate, I think it is worth considering initiating a position in this biotech stock

2. Can Biogen's aducanumab treat Alzheimer's disease?

Biogen has been looking to develop a medicine that can treat the cognitive decline associated with Alzheimer's disease (AD) for years. The FDA is currently reviewing the company's aducanumab for that indication. If it is approved, it would indeed be a game-changer: More than five million Americans suffer from AD, and no approved drug is known to be able to treat it. It is also the fifth leading cause of death among adults over the age of 65, according to the CDC.

But even though there is a real need for a medicine like aducanumab, is it likely to receive regulatory approval from the FDA? First, note that in March 2019, Biogen actually discontinued the development of aducanumab because an analysis performed by an independent committee indicated that the drug was unlikely to meet its primary endpoints in two phase 3 clinical trials. 

But in October 2019, the biotech resurrected this project because it said that an analysis of a larger dataset of the phase 3 studies in question revealed that AD patients treated with aducanumab "experienced significant benefits on measures of cognition and function." Biogen completed the submission of a biologics license application (BLA) for aducanumab in July 2020. The FDA granted the potential AD drug priority review and set a PDUFA date of March 7, 2021.

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However, in November 2020, an advisory committee convened by the FDA overwhelmingly voted against aducanumab's approval. Of course, this doesn't mean the medicine won't get the nod, but things certainly aren't looking good. It is also worth noting that last year, a judge invalidated a patent on Tecfidera, which happens to be one of Biogen's top-selling products.

The biotech now faces generic competition for Tecfidera, which could lead to lower sales volumes and lower revenue from this multiple sclerosis drug. Biogen is looking for other growth opportunities. In November, the company entered into a partnership with Sage Therapeutics (SAGE 0.35%), a biotech company that focuses on developing medicines for brain-related diseases.

The two entities will develop zuranolone, a potential treatment for major depressive disorder, and SAGE-324, an experimental treatment for essential tremor. Sage Therapeutics got $1.525 billion (in the form of an upfront payment of $850 million and a $650 million equity investment) out of the transaction. Meanwhile, Biogen acquired the rights to commercialize these medicines in most countries outside the U.S. But these programs are much too early in their development process to be of any help to Biogen in the near term.

With this backdrop in mind, my feeling is that Biogen's stock is too risky to invest in at the moment. I expect the FDA to decline to approve aducanumab, and the long-term prospects of the programs it acquired thanks to its partnership with Sage Therapeutics are still to be determined. And given the headwinds Tecfidera will face, there is too much uncertainty surrounding Biogen at the moment, and it'd be best for investors to watch from the sidelines.