GW Pharmaceuticals (NASDAQ:GWPH) and Cara Therapeutics (NASDAQ:CARA) often get lumped together as cannabinoid-focused biotechs. However, that label is really only applicable to GW Pharmaceuticals. Although Cara Therapeutics has done some preclinical testing on a cannabinoid receptor agonist and holds some patents on cannabinoid compounds, the company doesn't really focus on cannabinoid development.

So far in 2020, GW has been the bigger winner, gaining 16% compared to Cara's single-digit-percentage increase. But which of these two biotech stocks is the better pick over the long run?

Gloved hands holding two test tubes

Image source: Getty Images.

The case for GW Pharmaceuticals

Nearly everything is going well for GW Pharmaceuticals these days. The company hit a home run with its first-quarter results. Its revenue more than tripled year over year. Although GW isn't profitable yet, it's making significant progress toward that goal.

CBD drug Epidiolex has proven to be a bigger commercial success than many expected. That success so far has come primarily in the U.S. in treating Dravet syndrome and Lennox-Gastaut syndrome (LGS), both of which are two rare forms of epilepsy.

However, the drug is also gaining momentum in Europe (under the brand name Epidyolex) for both indications. That momentum should accelerate thanks to the United Kingdom recently reclassifying Epidyolex as a Schedule 5 drug, which significantly lowers regulatory restrictions. 

GW could also soon enjoy another sales boost in the U.S. market. The biotech awaits an FDA approval decision for Epidiolex in treating tuberous sclerosis complex (TSC) by July 31, 2020. Assuming the FDA gives a thumbs up, GW plans to begin marketing the drug for the new indication in August. It also hopes to win European regulatory approval for the TSC indication.

Another approved indication could be on the way for Epidiolex as well. GW is evaluating the CBD drug in a phase 3 study in treating Rett syndrome, a rare genetic neurological disorder.

While Epidiolex is certainly GW Pharmaceuticals' most important product, the biotech's pipeline also includes other cannabinoid drug candidates. Nabiximols is already marketed outside the U.S. under the brand name Sativex as a treatment for multiple sclerosis spasticity. GW has a late-stage clinical trial under way in the U.S. with the hope of obtaining FDA approval. It's also evaluating other cannabinoids in phase 1 and phase 2 studies targeting diseases including epilepsy, autism spectrum disorders, and schizophrenia. 

The case for Cara Therapeutics

Unlike GW Pharmaceuticals, Cara Therapeutics doesn't have an approved drug on the market yet. That could soon change, though.

The company reported positive results in April from a late-stage study of Korsuva injection in treating moderate-to-severe chronic kidney disease-associated pruritis (CKD-aP) in patients on hemodialysis. At least 40% of patients on dialysis experience the itching condition.

Cara already has a big partner lined up for commercialization of Korsuva injection, Vifor Fresenius Medical Care Renal Pharma (VFMCRP). The biotech expects to file for U.S. and European approvals in the second half of 2020.

There are more opportunities for Korsuva as well. Cara hopes to begin a late-stage clinical study of oral Korsuva later this year in treating patients with CKD-aP who aren't on dialysis. It's conducting phase 2 studies of oral Korsuva in treating pruritis associated with atopic dermatitis and in treating pruritis associated with primary biliary cholangitis (PBC). Results from both studies are expected later this year.

Wall Street analysts think that Korsuva injection could potentially achieve peak annual sales of more than $500 million if approved. But that's just for the population of CKD patients on hemodialysis. The market potential for the oral version of the drug would be much larger in treating CKD patients who aren't on dialysis and in the other targeted indications.

Better buy

GW Pharmaceuticals is the safer pick. Epidiolex is performing well. I suspect there's a good chance that the drug will win regulatory approvals in treating TSC, which would expand the potential market significantly. GW should also have decent prospects of winning U.S. approval of nabiximols.

But more aggressive investors might prefer Cara Therapeutics. The company's market cap is only around $800 million. If Korsuva injection wins FDA approval later this year (which I think will happen), the stock should soar. My hunch is that the drug will be a hit, especially with the backing of VFMCRP.

I think both of these stocks are attractive. Which one is the better pick depends on your risk tolerance.