Biotech is an area of high risk and high reward -- and I am watching two stocks that have strong potential growth prospects going forward, although they are not without their risks.

One approval and a nice pipeline
Omeros (NASDAQ:OMER)(NASDAQ:OMER) will market its recently approved drug sometime in late summer or early fall. The drug is Omidria and is the only treatment approved for maintaining pupil dilation and pain management related to opthalmic surgeries.

Analysts forecast that the drug could generate peak sales of $500 million to $600 million. The company plans on marketing the drug in the European Union by the end of the year or early 2015. 

This is the first drug to market for the company, and the company has an interesting pipeline. Its OMS824 has received Fast Track and orphan drug designations from the FDA for the treatment of patients with Huntington's Disease. 

Analysts also project that OMS824 could bring in $770 million in peak annual sales for the treatment of schizophrenia. The company reported encouraging results from a phase 2a trial in the schizophrenia indication a few months ago, although of course we'll need to see more trial data to get a better feel for the drug's opportunity and potential success.

Also in the pipeline is OMS103, a drug to treat pain following arthroscopic partial meniscectomy which is currently in late-stage trials. OMS721, a drug designed to treat thrombotic microangiopathy, a life-threatening disorder that causes multiple clots in the circulation of organs, is also in phase 2 trials. The drug is the first to result from the company's MASP-2 program. This program has the potential to produce more treatments for inflammation as a result of tissue damage or microbial infection.

A sales forecast of double market cap
Dynavax (NASDAQ:DVAX) has had trouble with its hepatitis b vaccine Heplisav. Both the FDA and the EMA put holds on the drug despite strong clinical trial data. The agencies expressed concern safety issues. Dynavax has initiated further phase 3 trials to address the concerns, and is scheduled to complete these by the end of 2015.

Regulators have praised the immunogenicity of Heplisav in a market with unmet need, so if the drug continues to perform and provides strong safety data, approval seems likely. Approval could result in as much as $700 million in sales a year, although that is well on the upper end. But when you consider a market cap under $400 million, even a fraction of those sales could make a big difference.

The company is sitting on roughly $177 million of cash which is more than enough to cover its current cash burn rate for the 2 years of clinicals for Heplisav.  Income comes in part from milestone payments from two larger pharmaceuticals.

The company has partnerships with GlaxoSmithKline and AstraZeneca, but its pipeline (including the partnered drugs with Glaxo and Astra) is still pretty early stage aside from Heplisav. I think that the partnership with AstraZeneca looks promising. Earlier this year the two companies entered an agreement whereby AstraZeneca will take control over clinical trials once the phase 1 studies are completed. So the large pharmaceutical likes what it sees and Dynavex is entitled to as much as $100 million in milestone payments in addition to any royalties after the drug goes to market.

High risk, high reward
I think that each of these companies has an interesting opportunity to generate some serious revenue, but like any early-stage company, there are lots of risks too -- drugs could not get approved, big pharmas could pull the plug on partnerships, and cash burn could expand and cause share dilution. So you might consider getting these companies on your watchlist and digging deeper into the opportunities and risks.

Eric Thomasson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.