Provention Bio (PRVB) is a small-cap biotech whose shares have doubled in the past three months. The company can thank the expected and eventual approval of Tzield for that performance. In mid-November, Tzield became the first and only treatment approved by the U.S. Food and Drug Administration (FDA) for the delay of the onset of type 1 diabetes (T1D) in at-risk patients.
While Provention Bio is flying high due to this major regulatory decision, it's important to look deeper into this company before purchasing its shares. Can Provention Bio maintain this momentum?
A late approval with a decent potential
Tzield hasn't had an easy path to approval. In July 2021, regulators declined to give it the green light due to manufacturing issues. In other words, the medicine could have earned the nod more than a year ago. Thankfully, Provention Bio resolved the issues regulators raised, and Tzield eventually made it through the finish line. And now that it's approved, it is looking at a reasonable opportunity in the market.
Tzield is indicated for people with stage 2 T1D, a stage at which patients already have abnormal blood sugar levels but do not display any symptoms. The medicine will help prevent progression to stage 3 T1D, which is when clinical diagnosis happens. Most patients are diagnosed at a very young age.
To manage this chronic health illness, those who develop full-blown T1D typically must make significant lifestyle changes. Such changes include managing blood sugar levels, tweaking eating habits, exercising more regularly, and taking insulin daily. Patients with T1D are also at a greater risk of developing various other diseases, including heart-related conditions.
So even though Tzield does not prevent T1D, delaying the medicine for at-risk patients can still make a difference. Tzield delayed the onset of stage 3 T1D by a median of 25 months in one clinical trial.
Family history is one of the factors that raise the risk of T1D. Provention Bio will target about 30,000 such patients in the U.S. But Provention Bio will also seek to earn label expansions for its crown jewel.
Tzield is being investigated as a potential treatment for newly diagnosed stage 3 T1D patients. The company is running a phase 3 clinical trial along those lines. It expects top-line data from this study in the second half of 2023. Provention Bio estimates that there are 64,000 newly diagnosed T1D patients in the U.S. every year. So if Tzield is approved for that indication, it would substantially increase its target market.
Does the upside outweigh the risks?
Despite the recent approval of Tzield, Provention Bio remains a relatively risky prospect, especially for investors focused on the long game. The most immediate potential headwinds it could face relate to this newly approved medicine.
First, consider whether Tzield will be successful in its current indication. According to the U.S. Centers for Disease Control and Prevention (CDC), diabetes often goes unnoticed by those who have it. Most of these undiagnosed patients are probably of the type 2 variety, but it is possible to have T1D without any -- or at least with relatively mild -- symptoms for months.
It stands to reason that those with stage 2 T1D who don't have any symptoms are even less likely to be aware. And unless people know they are at risk, they won't be prescribed Tzield. Put a different way, Provention Bio's groundbreaking treatment may not be as successful as the company hopes due to under-diagnosis issues.
Also, it could fail to prove effective in its ongoing phase 3 study to treat newly diagnosed T1D, which would send its stock price crashing. Further, other companies are working on competing therapies. Biotech giant Vertex Pharmaceuticals is developing a T1D therapy that could help restore patients' ability to regulate glucose levels. Although the company's candidate, VX-880, is still in the early stages, that is something to keep in mind for investors considering Provention Bio.
It's also worth considering the biotech's financial position. The company ended the third quarter with $186.5 million in cash and equivalents, up 23.7% year over year, thanks partly to a recent private placement that helped the company raise $57.2 million in net proceeds. With Tzield's commercialization efforts on the horizon, the company's expenses will rise. Provention Bio may need to find ways to raise funds in the next six months, and it could resort to dilutive forms of financing -- something biotech companies of this size often do.
Provention Bio's potential could be massive if Tzield is successful in its current indications and earns approval in treating stage 3 T1D patients. The company is also developing other candidates that seek to delay other autoimmune disorders. But the biotech is facing many risks, and interested investors should only initiate a small position. For other investors focused on the long game, there are much more attractive biotech stocks to consider.
