Fortunes can change quickly in the volatile biotech industry. And few things can impact drugmakers' performance -- and prospects -- the way regulatory approvals can. That's why it's a good idea for biotech investors to keep an eye on upcoming regulatory decisions.
With that as a backdrop, let's look at two companies that could land green lights from regulators in the U.S. before the end of the year: Gilead Sciences (GILD -2.70%) and Provention Bio (PRVB).
1. Gilead Sciences
Gilead Sciences is a leader in the HIV drug market. But pandemic-related headwinds have harmed its business. HIV diagnostics remain below their pre-pandemic levels, and Gilead Sciences hasn't fully rebounded as a result. But there's another problem.
Gilead Sciences' HIV PrEP medicine Truvada has been facing generic competition, leading to a substantial drop in sales. During the second quarter, Truvada's revenue came in at $34 million, down 68.5% compared to the prior-year quarter. Thankfully, Gilead's pipeline is full of potential new HIV medicines; it is currently awaiting U.S. approval for an important one: Lenacapavir.
Lenacapavir is a potential six-month, long-acting regimen for HIV that has encountered regulatory roadblocks in the U.S. In March, the U.S. Food and Drug Administration (FDA) declined to approve it due to manufacturing issues. However, during the second quarter, Gilead resubmitted an application to the agency after discussing the matter with regulators.
The therapy is almost certain to earn the green light this time around. And even if it doesn't, it almost certainly will eventually. The FDA set a PDUFA date (the latest date by which it will complete the review of the biotech's application) of Dec. 27.
Lenacapavir could be a smashing success. There are various types of HIV regimens, including some that are taken daily or monthly. But there isn't any that lasts six months: Lenacapavir is the first. For eligible patients, this therapy would make their lives substantially easier.
The drug earned approval in Europe in August, where it will be marketed as Sunlenca. It will be a fine addition to Gilead's HIV portfolio, which features Biktarvy, the leading HIV treatment in the U.S., and Descovy, one of the top HIV PrEP medicines in the country.
As the pandemic subsides, Gilead Sciences' HIV business will recover. Meanwhile, the company is developing therapies in other areas, including oncology.
Gilead Sciences is unlikely to deliver market-shattering returns, but with a substantial yield of 4.54%, a conservative cash payout ratio of 39%, and a business that offers necessary goods, it is an excellent stock for risk-averse income-seeking investors.
2. Provention Bio
Provention Bio develops therapies that target autoimmune diseases such as type 1 diabetes. The company's leading candidate, teplizumab, is a promising investigational therapy that could help slow the onset of type 1 diabetes in at-risk patients.
The medicine did so in a clinical trial, delaying type 1 diabetes by a median of 32.5 months. However, the FDA initially declined to approve teplizumab, also due to manufacturing issues. Provention Bio was able to work things out and resubmit an application for teplizumab to authorities in the U.S.; the FDA could make a decision by Nov. 17.
Provention Bio currently has no products on the market. As things stand, there is no medicine to delay the onset of type 1 diabetes. The company is targeting an initial market of 30,000 people in the U.S., mostly made up of direct relatives of existing type 1 diabetes patients. The biotech's goal is to develop a suite of therapies to delay or prevent various autoimmune diseases.
It boasts a pipeline with about a handful of other programs. For example, it is developing PRV-3279 to prevent systemic lupus erythematosus, and its ordesekimab is targeting celiac disease. But both of these are still in phase 1 or phase 2 trials.
However, despite the potential approval of teplizumab, Provention Bio looks risky. First, many other drugmakers are looking to make a dent in the diabetes market. That includes biotech giant Vertex Pharmaceuticals, whose VX-880 could help type 1 diabetes patients do away with the need for insulin.
Second, even though teplizumab is likely to earn approval this time, it's never a sure bet. And unlike Gilead Sciences, Provention Bio does not have a rich lineup of medicines to fall back on if teplizumab flops again. If that happens, the company's shares will likely implode.
Further, and as usual with clinical-stage biotech companies, it is worth keeping an eye on Provention Bio's financial situation. The company ended the second quarter with $96.1 million in cash and cash equivalents. It also raised $57.2 million in net proceeds from a private placement in July. Management believes that its almost $100 million in cash plus the money from the private placement would be sufficient to fund its operations for at least a year.
What's more, Provention Bio has entered into another loan agreement that could help it prepare for the launch of teplizumab. The company has also signed a deal with France-based biotech Sanofi -- one of the worldwide leaders in diabetes medicines -- to help with the launch of teplizumab.
In light of these agreements, Provention Bio should have enough money to support its commercialization efforts of teplizumab and keep its operations running post-launch. Still, the company runs various risks, and only investors comfortable with a little volatility should consider purchasing its shares.
