Cara Therapeutics Inc. (NASDAQ:CARA), and GW Pharmaceuticals plc (NASDAQ:GWPH) often get lumped in with a stack of risky marijuana stocks, because both are developing drugs derived from the controversial plant. If this distinction has kept you from investing in either, you're missing out on two quality biotech stocks with futures that are completely removed from that of the federally controlled substance.

That doesn't mean these two biotechs aren't risky. Neither has an FDA-approved product, and if their lead candidates don't receive a stamp of approval, investors buying in now could suffer heavy losses. A green light from the regulator, on the other hand, could lead to tremendous gains over the long run. 

Here's a closer look at challenges and opportunities they're facing to see which is a better stock to buy right now.

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The case for Cara Therapeutics

This company gets lumped in with marijuana stocks because it's developing a cannabinoid receptor agonist that has been shown to limit pain signal transmission in rodents. Until CR701 produces similar results in humans, though, investors will want to remain focused on its opioid receptor agonist. CR845 halts pain and itch signals near their source but isn't active in the brain, where other opioids cause euphoric sensations that make them terribly addictive.

Amid a raging opioid epidemic, physicians are clamoring for effective pain medication they can prescribe with a clear conscience. This is why Cara Therapeutics stock had more than doubled earlier this year, when clinical trial data suggested it might be the answer healthcare providers have been looking for.

A version of Cara's lead candidate given as an intravenous infusion sailed through a mid-stage clinical trial as a reliever of post-abdominal surgery pain, and independent data monitors recently gave the thumbs-up during an interim analysis of a larger study that could support an application for this indication if successful. In a separate study with kidney disease patients who suffer from chronic itching, a condition called uremic pruritus, patients given CR845 reported worst-itch scores 68% lower than those given a placebo. 

However, the stock crashed near the end of June, after a group of arthritis patients reported pain-relief scores that weren't strong enough to be considered significant after treatment with CR845 in tablet form. While intravenous CR845 could generate hundreds of millions in sales each year in the post-surgical or uremic pruritus settings, success with a tablet version to relieve chronic pain could be worth billions.

A pharmacist looks at a computer monitor while holding a pill bottle in one hand and typing with the other.

Image source: Getty images.

Although oral CR845 failed to achieve the main goal of the arthritis trial, there were too many positive signals to give up hope for eventual success in the chronic-pain setting. For example, a significantly higher percentage of patients given the candidate said their arthritis was "much improved" or "very much improved" compared with those given placebo. Given the candidate's well-tolerated safety profile, a subsequent trial with a higher dosage might do the trick.

The case for GW Pharmaceuticals plc

There are roughly 2.2 million Americans living with epilepsy, but available treatment options are in dire need of an upgrade. An estimated one-third of patients continue having seizures, despite using one or more antiepileptic therapies.

GW Pharmaceuticals' lead candidate, Epidiolex, is a marijuana-derived cannabinoid that attacks epilepsy from a different angle from existing treatments. Clinical trial evidence suggests it could greatly reduce seizure frequency for scores of currently underserved patients, although the company has its sights set on two small groups of underserved epileptics at the moment. 

Dravet and Lennox-Gastaut are two extremely difficult-to-treat forms of epilepsy that affect a relatively small number of patients. During clinical-trials designed to support new drug applications to treat both, Epidiolex significantly reduced seizure frequency compared with a placebo, plus it appears far more tolerable than antiepileptics it could eventually compete with.

Earlier this year, management stated it expected to submit applications for Dravet and Lennox-Gastaut around the middle of the year. If Epidiolex earns widely expected approvals for both conditions, it could open doors to a much larger population of underserved patients with more common forms of epilepsy.

Running the numbers

If Epidiolex can command a price in line with existing anti-epileptics and reach a modest percentage of patients who still suffer too many seizures despite using available drugs, annual sales north of $2.5 billion is a reasonable estimate. At recent prices, GW Pharmaceuticals sports a $2.96 billion market cap. Biotech stocks generally trade at mid-single-digit multiples of their annual sales, which suggests that an increase several times over from present levels is within the realm of possibility.

A similar case can be made for Cara Therapeutics. If intravenous CR845 earns approvals to treat uremic pruritus and post-abdominal-surgery pain, it could generate peak annual sales roughly in line with its recent market cap of about $453 million, even if an oral version for chronic pain relief completely flops.

While I think both of these stocks have what it takes to outperform over the long run, GW Pharmaceuticals shares could fall from current prices if Epidiolex can't expand beyond Lennox-Gastaut and Dravet. For Cara Therapeutics, an outside chance a tablet form of CR845 could become a non-addictive solution for millions of patients with chronic pain is downright thrilling, and that makes it the better buy right now.

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.