Investing in biotech companies can be hard to figure out. Great science and early-stage success doesn't always translate into drug approvals. In fact, only 10% of drug candidates that enter phase 1 trials will make it to the market. Still, the potential returns from a blockbuster drug lead many to buy shares and hope for the best.

Another approach is to buy a past winner that has the ability to spread its bets on research and development. Although the upside might not be as great, a drugmaker with cash coming in the door has a much greater margin of safety than a small company with all its eggs in one basket.

That's why I like Regeneron Pharmaceuticals (REGN 0.41%), Vertex Pharmaceuticals (VRTX -0.59%), and Seagen (SGEN). Here's how each is leveraging past success for future growth.

A researcher looks through a microscope in a lab.

Image source: Getty Images.

1. Regeneron Pharmaceuticals

One company that keeps finding itself at the cutting edge of medicine is Regeneron Pharmaceuticals. The company became a household name last year when their REGN-COV monoclonal antibody therapy was used to treat President Trump for COVID-19. 

Earlier this year, the company was the toast of the scientific world as it partnered with Intellia Therapeutics to deliver the first-in-human data to validate the CRISPR-based gene-editing approach. Other readouts using the approach have required editing genomes outside the body and reintroducing them through infusion. With a few exceptions, Regeneron has the exclusive rights to Intellia's technology for diseases of the liver.

That bodes well for the future. But the company is performing exceptionally well in the present. Revenue for the first six months of the year was up 138% to $5.86 billion. Much of that increase was due to the COVID therapy that wasn't available to the public during the same period last year. Removing that, sales still jumped 38%.

The standout is Eyelea, Regeneron's therapy for wet age-related macular degeneration. The drug was responsible for more than 81% of the company's sales -- other than REGN-COV -- in the first half of this year.

Despite these numbers, Regeneron is more than a one-hit wonder. Dupixent -- its drug candidate for autoimmune diseases with partner Sanofi -- has already shown positive phase 3 results for atopic dermatitis in children. There are at least a dozen additional diseases it's being studied in.

One analyst at research firm Benchmark says it could be the top-selling drug in the world by 2030. With innovation of its own, as well as productive partnerships, Regeneron could offer one of the best risk-reward ratios for investors seeking exposure to biotechs for the next decade.

2. Vertex Pharmaceuticals

The gene for cystic fibrosis (CF) -- a disease that causes a thick mucus to build up in organs -- wasn't discovered until 1989. Because it's relatively rare, there wasn't much economic incentive for companies to develop a treatment.

In 2000, the Cystic Fibrosis Foundation agreed to fund the work. That research was eventually acquired by Vertex and led to approval of its first drug -- Kalydeco -- in 2012. That only addressed 4% of patients. With continued development, its latest drug -- Trikafta -- can improve the lives of 9 out of every 10 CF patients.

Management expects revenue of about $7.3 billion this year. That's nearly 18% higher than last year. The company also has $6.7 billion in cash.

Still, Wall Street has been unimpressed with the prospects for growth beyond CF. The stock trades for the cheapest price-to-sales (P/S) ratio since Kalydeco was first released.

VRTX PS Ratio Chart

VRTX Price-to-Sales (P/S) Ratio data by YCharts.

To spur growth, the company is taking aim at other diseases. The most notable is its recent $900 million purchase of the majority rights to CTX001 -- the therapy it developed with gene-editing pioneer CRISPR Therapeutics. The treatment for sickle cell disease and transfusion-dependent beta thalassemia has shown remarkable results in clinical trials. In the 22 patients who have been treated and observed for at least four months, the therapy has served as a functional cure with lasting results.

Although the share price of Vertex sits at about the same level it was three years ago, the company has made advances in every other measure. It also has other promising early-stage candidates in its pipeline, including one for type 1 diabetes.

Wall Street can be shortsighted and impatient when it comes to stories that take years to play out. With Vertex Pharmaceuticals, investors have a chance to buy it while it's cheap before owning the shares comes back in fashion. In an industry where failure is the norm, it's a safer bet that should outperform the market over the next decade.

3. Seagen

Antibody-drug conjugates are drugs that combine monoclonal antibodies -- a lab-created protein designed to find and attach to an antigen signaling the immune system to attack -- with cell-killing, anti-cancer chemotherapies. Seagen has become a leader in the space but has flown somewhat under the radar despite its financial success.

Seagen's nearly $2.4 billion in trailing-12-month sales are more than 2 1/2 times greater than the company generated in 2019. The revenue is split almost evenly between product sales and licensing and royalty revenues. 

Its three commercialized products -- Adcetris, Padcev, and Tukysa -- are the drivers of present and future revenue. Adcetris was first approved for Hodgkin lymphoma in 2011. It targets CD30 -- a protein expressed on the surface of certain cancer cells. It's also approved for T-cell lymphoma and is under study for six other similar indications.

Padcev was approved in late-2019 for previously treated bladder cancer and is in three additional clinical trials. Tukysa received approval last year for a subset of breast cancer. Seagen is conducting further studies in the hopes of expanding the uses for the drug to colorectal, gastroesophageal, and gastric cancer.

While Adcetris accounts for the majority of product sales, royalty revenue comes from Takeda Pharmaceuticals' rights to the drug outside of North America. The bulk of licensing revenue comes from Merck. The drugmaking giant took a $1 billion equity stake in Seagen last October as part of a collaboration agreement related to Tukysa, as well as another breast cancer drug candidate in Seagen's pipeline.

Similar to Vertex, the P/S ratio is currently at a multiyear low. That's despite an important cancer-fighting approach with a market expected to grow almost 24% annually to reach $24 billion by 2028. 

SGEN PS Ratio Chart

SGEN PS Ratio data by YCharts

Seagen may not have the sex appeal of gene-based medicines, but the foundation of approved drugs and potential for additional applications could make today's price a bargain. To realize them, investors need to be willing to own shares while the market for anti-drug conjugates plays out over the next decade.