Investing in biotech companies, especially relatively small ones, can be a double-edged sword. On the one hand, these stocks often carry massive upside potential, provided things work in their favor. However, this potential comes with elevated risks, so investors should always be cautious when considering investing in smaller companies in the industry.

With that in mind, let's look at two gene-editing-focused biotechs that could perform substantially better next year: CRISPR Therapeutics (CRSP -1.98%) and Bluebird Bio (BLUE 7.03%). These companies' ongoing developments could fuel huge runs in 2023.

CRSP Chart

CRSP data by YCharts

1. CRISPR Therapeutics 

Right now, CRISPR Therapeutics is a clinical-stage biotech. However, that could change next year. The company's most advanced candidate is exa-cel, which targets two blood-related diseases: sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT). CRISPR has partnered with Vertex Pharmaceuticals for years in developing exa-cel, and their efforts are about to pay off

The two entities plan to complete regulatory submissions for exa-cel in Europe and the U.S. by year-end and the first quarter of 2023, respectively. Exa-cel has a great chance of earning approval, considering the potential it has already shown in clinical trials. In one study, exa-cel helped rid all 31 SCD patients of painful side effects of the disease called vaso-occlusive crises. It also led to transfusion independence in 42 of 44 TDT patients. The remaining two showed substantial reductions in transfusion volume.

Here's one more reason why exa-cel looks likely to earn approval. There are few therapies for TDT and SCD, and most that do exist typically do not rid patients of these illnesses. Meanwhile, this gene-editing treatment promises to be a one-time curative option. Exa-cel has received various regulatory designations in both the U.S. and Europe, which will help speed up the review process.

The therapy's approval could provide a major boost to CRISPR Therapeutics, helping validate its plan to develop novel treatments for difficult-to-treat illnesses as well as generate revenue to fund other programs. CRISPR and Vertex will target an initial market of about 32,000 patients across the U.S. and Europe for exa-cel.

As a gene-editing treatment, it will almost certainly be very expensive. So even with a relatively small patient population, it could easily exceed blockbuster status. CRISPR Therapeutics will be responsible for 40% of the costs and rack up 40% of the profits associated with exa-cel if it is approved.

The biotech sold the remaining rights to exa-cel to Vertex. As of the end of the third quarter, CRISPR Therapeutics had about $2 billion in cash and equivalents, compared to $2.4 billion as of the end of 2021.

The biotech is also advancing other programs, including several therapies targeting various forms of cancer. With plenty of funding and solid programs, CRISPR Therapeutics could have a great year in 2023 and become an even more attractive stock if exa-cel earns approval as most expect it will. For those biotech investors seeking stocks to buy and hold for a while, CRISPR Therapeutics looks like a good option.

2. Bluebird Bio

Bluebird Bio has had a pretty good year although that isn't fully reflected in its stock price. The company recently earned approval for two gene-editing therapies, TDT treatment Zynteglo, and Skysona, a medicine that targets a rare neurological disorder called cerebral adrenoleukodystrophy. 

Bluebird is currently launching these two therapies, and provided everything goes according to plan and money starts rolling in, the biotech's fortunes could change next year. After all, Bluebird's shares have more than doubled in the past six months thanks to developments surrounding Zynteglo and Skysona. The company could extend these gains with some success on the market.

However, there are risks investors should consider. Zynteglo and Skysona are very complex to administer and can only be provided by certain qualified treatment centers (QTCs). The company sees a population of about 50 TDT patients in the initial launch of Zynteglo in the first wave of QTCs.

Overall, Bluebird thinks it can target about 850 TDT patients in the U.S., but that won't be easy considering the complexity of the gene-editing treatment; it will also take time to get all of the QTCs required to target this patient population on board. That could be a problem since Bluebird likely needs money fast. 

Bluebird ended the third quarter with $186 million in cash and equivalents (including restricted cash), which it thinks will be enough to fund its operations until the second quarter of 2023. That's not very long, and Bluebird will have to find other ways to raise money by then.

It won't be an issue if Zynteglo and Skysona start generating solid revenue. The former costs $2.8 million, while the latter is priced at $3 million, making them the two most expensive treatments in the world. Even with several hundred patients lined up, both could generate upward of $100 million, not bad for a company whose market cap is currently $640 million.

If things work out that way next year, it will help catapult Bluebird's top line and stock price. But given Bluebird's current financial situation, the downside could be enormous if the launch of these therapies is delayed.

Could Bluebird crush the stock market next year? Possibly, but only risk-off investors should consider initiating a position.