Binary events, FDA decisions, and clinical trial results, are the lifeblood -- and death wish -- of the biotech industry. They're a necessary part of the drug development process. They don't always fall your way, but they're always fun to watch, even if you're sitting on the sidelines, which is often the most appropriate place to be for many binary events.

Since drugs have FDA review times of six or 10 months and the approximate end of clinical trials is known after the last patient is enrolled, investors get forewarning that the binary events are going to happen. There are a lot of drugs that will face binary events in 2012, and I've already reviewed three -- but here are three more I think you should watch.

Party like its 2010
On April 17 and sometime in the middle of the year, VIVUS (Nasdaq: VVUS) and Arena Pharmaceuticals (Nasdaq: ARNA), respectively, should both get decisions about their obesity drugs that were turned down in 2010. The companies have been working diligently throughout 2011, attempting to satisfy the FDA's requests for additional information about the safety of their drugs.

VIVUS has already resubmitted its application, avoiding women who could become pregnant to eliminate the risk of a potential birth-defect issue, and should hear back from the FDA on April 17. Arena has guided for a resubmission around the end of the year, which would put a decision in the middle of next year.

The FDA has treated obesity treatments as lifestyle drugs that require a clean bill of health before approval. Thus far, meeting that high standard has proved difficult. From the agency's perspective, there's little motivation to approve the drugs and risk another fen-phen issue.

My prediction: Same result as 2010, with the caveat that the FDA can be schizophrenic and could shift gears and become more lenient -- or bow to some outside pressure. Either way, stay away until it's clear the agency has turned over a new leaf.

Don't forget the binary event
Near the middle of next year, Elan (NYSE: ELN), Johnson & Johnson (NYSE: JNJ), and Pfizer (NYSE: PFE) will finally get results from the phase 3 trials testing their Alzheimer's treatment bapineuzumab. Elan has only a 25% stake in the drug, but being considerably smaller than either of the pharmas, Elan has the most to gain from a positive result.

Predicting the results of the upcoming trial based on the phase 2 results is difficult, because, as you may recall, the earlier trial was marred with controversy. With little to go on, we'll have to turn to history of previous Alzheimer's treatment, which doesn't bode well for bapineuzumab. There was Myriad Genetics' Flurizan, and Medivation (Nasdaq: MDVN) and Pfizer's (NYSE: PFE) Dimebon, and the list of failures in the Alzheimer's disease space goes on. It's a tough space to work in; even the drugs that have been approved don't work all that well.

Fortunately for Elan, I think expectations for bapineuzumab are fairly low; I doubt a negative trial will crush the stock, but a positive one will surely cause Elan to skyrocket.

My prediction: I'm going with history on this one and predicting that one or more of the phase 3 trials fails.

Succeed indeed
In early June, the FDA should make a decision about Ariad Pharmaceuticals (Nasdaq ARIA) and Merck's (NYSE: MRK) sarcoma drug ridaforolimus. Nothing is a guarantee when the FDA is involved, but the drug looks like it has a very good chance at getting on the market next year. The companies' phase 3 trial, SUCCEED, lived up to its name, improving the progression-free survival by 21% compared with placebo.

My prediction: I'll go out on a limb of steel and predict an FDA approval.

Flip a coin?
Holding shares -- or shorting them, for that matter -- through a binary event is appropriate only for investors with strong stomachs and the ability to sustain substantial losses. That might mean sitting on the sidelines or substantially cutting back on the amount you invest.

Also keep in mind that FDA demission dates are goals that the FDA sets for itself. Recently, decisions, especially for cancer drugs, have been coming early, but it's also possible for the agency to miss the deadline, which might be announced or not. Day-trading the events is highly discouraged.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.