There are plenty of risks with biotech stocks. That's why it makes sense to invest in biotech companies that have plenty of likely growth but are also already profitable. Sure, you could take a flyer of a company that could go big with a breakthrough drug, but Vir Biotechnology (VIR -1.11%) and Vertex Pharmaceutical (VRTX -1.02%) already have breakthrough therapies, healthy pipelines, and enough incoming cash to finance the research and development of those pipelines, along with the marketing expertise to make future and current drugs profitable.

Both companies have also invested in gene-editing therapies, using the profits from other lead drugs to fund that research.

Vertex is focusing on branching out beyond cystic fibrosis

Vertex Pharmaceutical stock is up more than 30% this year, while the S&P 500 is down more than 17% this year and the Invesco Dynamic Biotech & Genome ETF is down more than 15%.

In the first quarter, Vertex reported revenue of $2.1 billion, up 22% year over year with earnings per share (EPS) of $2.96, up from $2.49 in the same period a year ago. The operating margin was down from 51% to 50%, but that's still a solid operating margin.

The company is in a strong position because of its franchise of cystic fibrosis (CF) therapies, led by Trikafta, which brought in $1.76 billion in revenue in the first quarter, up 47.9% year over year. It is also taking advantage of its CF profits to branch out into pain therapies and genetic blood disease therapies.

On Jul 22, the company said that after positive phase 2 trials earlier this year for its pain relief therapy VX-548, it plans to enter it into phase 3 trials in the fourth quarter, along with an additional phase 2 study of the therapy on neuropathic pain (nerve pain, frequently caused by diabetes). One phase 3 program will evaluate the efficacy and safety of VX-548 for moderate to severe acute pain following bunion or tummy-tuck surgeries, the other across multiple types of moderate to severe acute pain. The drug has been given a Breakthrough Therapy Designation by the Food and Drug Administration (FDA).

Vertex is also in collaboration with several gene-editing companies on curative therapies. It is in the process of acquiring private biotech company ViaCyte, which has a pipeline candidate, VX-880, that uses stem-cell replacement therapies as a potential cure for type 1 diabetes, for $320 million in cash. It also has collaborated with CRISPR Therapeutics on Exa-Cel, a therapy that has shown promise as a cure for transfusion-dependent beta thalassemia and severe sickle cell disease, two genetic blood disorders. Lastly, it recently entered into an agreement with Verve Therapeutics to help develop an "in vivo" gene editing program as a therapy against an undisclosed form of liver disease.

Vir is putting Xevudy cash to use

Vir Biotechnology has been able to maintain above 50% operating margins while watching its revenue rise remarkably. Since the company's initial public offering in 2019, its yearly revenue rose 1,343%, and yearly earnings per share climbed from an EPS loss of $5.76 to positive EPS of $3.96.

The stock is down more than 29% this year on fears the company will see diminishing profits from Xevudy (sotrovimab), its COVID treatment that brought in $1.2 billion in collaboration revenue from GSK in the first quarter. The FDA pulled its emergency use authorization (EUA) for the drug in April, but Vir is still seeing strong sales of the drug overseas as it has been approved in 40 countries. The drug is also in two phase 3 trials. The first is regarding its use, administered intravenously, for hospitalized patients and for its use, given by intramuscular injection, for high-risk nonhospitalized COVID-19 patients, so fears regarding revenue drop for the drug may be overblown.

Even if the bottom falls out of Xevudy sales, the company has a big pipeline to fall back on, including promising therapies to fight hepatitis B, hepatitis D, HIV, malaria, influenza, and COVID-19. And on top of all that Vir is trading with a low price-to-earnings ratio of 3.16 as of the close of Q1.

Its drugs to fight hepatitis B are showing the most promise so far in its pipeline, with several phase 2 studies of VIR-2218 by itself and as a combination therapy underway.

The company also joined the S&P SmallCap 600 effective on April 4, and since then, the stock has climbed from $25.33 at the close on April 4 to as high as $31.78 on Jul 17. That's probably because it is now automatically included in certain index funds.

Making the right choice for you

This isn't an either-or choice, as both biotech stocks could fit the right investor. The companies share an aggressive approach to doubling down on their successes, using profits to look for new therapies for rare diseases that could pay off hugely. Of the two, Vertex has less risk because it isn't facing the drop-in-revenue threat that looms over Vir. Because of that, Vir may be the better long-term stock because its shares appear to be more underpriced based on earnings and the company's potential.