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, but here are three I think you should watch.
Third time's the charm?
On Jan. 27, Amylin Pharmaceuticals
Bydureon should be able to succeed where Byetta failed because it has to be injected only once a week instead of twice daily. Amylin will be sans Eli Lilly
My prediction: approval (but then I said that last time).
One of these trials is not like the other
Sometime in the first quarter of next year, the phase 3 trial for Aeterna Zentaris
While this is a phase 3 trial and all the companies will need for approval, it feels a lot more like a phase 2 trial given the limited data available about the drug so far and changes from the phase 2 to phase 3 trial. Calling this binary event risky would be an understatement.
My prediction: too much uncertainty to make a definitive call, but with both companies so cheap, they might be worth an investment, especially if you can pick up some shares on a dip.
Can you approve me now?
On April 24, Cell Therapeutics
Pixantrone is also under review in Europe, and the company could hear back as early as Jan. 19, so this is really a two-for-one binary event. Either approval will raise the stock price substantially, but the U.S. decision is considerably more important because of the size of the market and price the drug can fetch here.
My prediction: I have a hard time seeing the FDA reversing course and approving pixantrone, but weirder things have happened. European regulators can be more lenient -- InterMune
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 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.
If you're looking for something a little less dependent on binary events for next year, check out the Fool's new free report, where Fool analysts report their top pick for 2012.
Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.