Investing in innovative drugs and therapies that treat patients with highly unmet medical needs can be a rewarding venture. Indeed, year to date, the iShares Nasdaq Biotechnology ETF (IBB 0.82%) has returned nearly 20%. During the same period, the S&P 500 index has gained just 1.28%. Despite all the disruptions caused by COVID-19, the biotech sector has been consistently outperforming. 

While large-cap biotech companies have been doing quite well, investors can frequently find market-beating performance in emerging biotechs developing cutting-edge treatments. Let's look at three top biotech stocks to invest in this month. 

Scientists working in a lab with microscopes.

Image source: Getty Images.

A leader in treating rare neurological diseases

First up is Ovid Therapeutics (OVID 0.46%), with a $365 million market cap This company is developing a treatment for Angelman syndrome, a genetic disease causing profound developmental delay in children. The treatment, called OV101, is designed to mitigate excessive neurotransmission between neurons that is thought to contribute to Angelman syndrome. By the company's estimates, 24,000 patients in the U.S. are living with the disease.

In phase 2 studies, 27 patients who took OV101 saw a 0.79 point decrease on a seven-point scale measuring the severity of the syndrome, compared with 27 patients who received a placebo. The results were highly significant statistically. Although that may seem like a small decrease, improvement in sleep, motor functions, and behavioral outcomes were reported by 84%, 63%, and 53% of patients, respectively, who took OV101. 

Recently, Ovid signed a deal with an Italian drugmaker for the development, manufacture, and commercialization of OV101 in Europe. This deal could be worth up to $232.5 million based on milestones. The drug is currently in phase 3 development.

Meanwhile, the company's entire pipeline covers approximately 210,000 patients in the U.S. Even if just a fraction of these patients use Ovid's drugs, the company estimates it can attain up to $1 billion to $2.5 billion per year in revenue due to orphan drug pricing. With $53.8 million in cash, little debt, and a promising treatment, I think biotech investors would be well rewarded by buying Ovid shares before top-line results for OV101 are released in the fourth quarter of 2020.

On the forefront of developing cellular medicines

Next up is Mesoblast (MESO 7.91%). Larger than Ovid at a $7 billion market cap, this biotech is developing cellular medicines for the treatment of inflammatory diseases. Mesoblast's technologies involve cellular therapies that are activated by multiple inflammatory immune cells (cytokines) through surface receptors, resulting in a cascade of anti-inflammatory activity in the body.

The company's flagship product is called Ryoncil (remestemcel-L) and is derived from bone marrow. The drug treats acute graft-versus-host disease (GvHD), in which donated bone marrow and/or stem cells treat their new host as foreign, attacking healthy body cells after transplant. Ryonicil is currently awaiting U.S. Food and Drug Administration (FDA) approval, with an advisory committee vote set for Sept 30.

Currently, a product related to Ryoncil, called Temcell, is approved in Japan for treating GvHD. The royalties Mesoblast collects from Temcell, licensed to a third party, are responsible for a significant portion of its growth. Nine months into the company's 2020 fiscal year (ended March 31), Mesoblast has recognized $31.5 million in revenue, representing astonishing 113% year-over-year growth.

Moreover, the FDA has granted compassionate-use status to Ryoncil for treating cardiovascular and other multisystem inflammatory syndrome complications in children who have COVID-19. With $150 million cash on hand, and a great upcoming product, Mesoblast is a superb biotech for investors to watch. 

Scientist injecting specimen into test tube.

Image Source: Getty Images.

Relief for patients with sickle-cell disease

Last year, $4 billion biopharma company Global Blood Therapeutics' (GBT) Oxbryta received approval from the FDA as a first-in-class inhibitor that directly mitigates sickling (deformation) and destruction of red blood cells in patients with sickle cell disease (SCD). There are currently 100,000 patients in the U.S. and 60,000 patients in the EU who have SCD. In clinical studies, approximately 51.1% of patients who took Oxbryta saw their hemoglobin levels improve. Oxybryta can also be taken with hydroxyurea, a generic drug that reduces the frequency of life-threatening vaso-occlusive crises (constrictions in blood vessels caused by deformed blood cells) in patients with sickle-cell disease.

In the first quarter of 2020, sales of Oxbryta amounted to $14.1 million, a near-sevenfold increase from the previous quarter. The number of new prescriptions also increased from 350 in the fourth quarter of 2019 to 1,650 in the most recent quarter. Moreover, Oxbryta is now covered by 30% of commercial insurance plans. 

Unfortunately, the COVID-19 pandemic has slowed down Oxbryta's momentum due to the difficulties of securing in-person visits with physicians. Prescription volume is down by as much as 60% since reaching a peak in mid-March. But there are signs that Oxbryta's growth is about to pick up again.

The growth in telemedicine as COVID-19 continues in the U.S. isn't entirely negative for Global Blood, though. In a company survey, 25% of physicians have prescribed Oxbryta after a virtual visit, and 93% say they will prescribe Oxbryta within the next three months. Additionally, the company is planning to submit a marketing application for Oxbryta with the European Medicines Agency to treat up to 60,000 sickle cell patients in Europe.

Overall, Global Blood can more than endure short-term woes. The company has no debt and over $600 million in cash and investments. With SCD costing patients $286,000 in healthcare expenses annually and reducing their life expectancy by as much as 30 years, there is no doubt Oxbryta is an essential medicine. Hence, I fully expect Global Blood to return to growth in the near future