Vir Biotechnology (VIR -1.36%) and Axonics (AXNX) are two of the fastest-growing healthcare companies in terms of revenue. Vir raised $142.9 million when it went public with an initial public offering (IPO) in 2019, while Axonics raised $120 million with its IPO in 2018.

The key to both companies' success has been impressive innovation, which should serve them well beyond this year's success. Let's take a closer look at each.

1. Vir Biotechnology is thinking ahead

Vir Biotechnology is a commercial-stage immunology company that focuses on infectious diseases. The company has gone from $711 million in annual revenue in 2019 to $1.1 billion in revenue last year and is on pace to bring in more than $2 billion in revenue this year.

The biotech company recently landed a $55 million contract with the U.S. Department of Health and Human Services' Biomedical Advanced Research and Development Authority (BARDA) to prepare for the flu or other diseases that could cause a pandemic, and the deal could be worth up to $1 billion.

In the third quarter, Vir reported revenue of $374.6 million, up 262% year over year. Net income was listed as $175.3 million, or $1.30 in earnings per share (EPS), compared to $110.4 million and $0.82 in EPS in the same quarter in 2021.

The stock is a favorite of the Bill and Melinda Gates Foundation, which owns 1,559,142 shares of Vir.

The company's price-to-earnings (P/E) ratio of 3.26 makes it appear to be a bargain, but there is one big risk with Vir that explains why its stock is down more than 34% so far this year: Nearly 83% of the company's third-quarter revenue came from its collaboration with GlaxoSmithKline regarding sales of Vir's COVID-19 monoclonal antibody therapy Xevudy (sotrovimab).

While the recent outbreak of the disease in China is a reminder the pandemic isn't over, much of the company's revenue is tied up in one therapy. As it is, Xevudy is sold overseas but no longer has an Emergency Use Authorization (EUA) in the U.S. because in April, the Food and Drug Administration found the therapy less effective against COVID-19's omicron BA.2 subvariant.

However, the company also has a solid pipeline that includes three therapies in phase 2 trials to fight hepatitis B, hepatitis D, and influenza A, and data from all three trials are expected next year. The company also has a promising HIV vaccine in phase 1 trials, VIR-1111, which is designed to trigger T-cell responses to the disease.

2. Axonics wins big by thinking small

Axonics specializes in bladder and bowel dysfunction therapies. It makes minimally invasive sacral neuromodulation (SMN) devices to treat overactive bladder, fecal incontinence, and urinary retention. The company's shares are up more than 14% this year.

The company's business is buoyed by an aging population that requires its therapies. According to a report by Acumen Research and Consulting, the global urinary incontinence treatment market was worth $2.9 billion in 2021 and was expected to have a compound annual growth rate (CAGR) of 10.1% between 2022 and 2030, reaching $6.8 billion by that time. Fecal incontinence is expected to have a CAGR of 3.5% from 2022 to 2029, according to a report by Data Intelligence.

In the third quarter, the medical device company reported revenue of $70.4 million, up 50% year over year, with an EPS loss of $0.34, compared to an EPS loss of $0.38 in the year-ago quarter. Three years ago, the company's revenue was only $770,000. In its third-quarter report, Axonics upgraded its guidance to show expected annual revenue of $262 million, compared to $180.3 million last year. 

The company's revenue growth is from two sources: its SMN devices and from Bulkamid, a long-lasting urethral bulking agent, given by injection to treat stress urinary incontinence in women. 

The company's biggest concern is it has a bigger competitor in Medtronic, which pioneered SMN devices and reported $7.6 billion in revenue in the third quarter. This year, a couple of months after Medtronic released its latest SMN device, the recharge-free InterStim X, which can last 10 years to 15 years, Axonics responded with its latest SMN device. The F15 is a recharge-free system that can last 10 years to 20 years in the body and is 20% smaller than Medtronic's InterStim.

Different choices, with different levels of risk

Both Vir and Axonics appear to be solid long-term choices with obvious risks. Vir won't be able to count on huge revenue numbers from Xevudy forever, and while it is certainly capable of finding new therapies to replace the COVID-19 drug, it will take time. In the meantime, however, the stock's slippage this year means a lot of those concerns are already priced in.

Axonics has less short-term risk but still has to find a way to outlast the larger Medtronic while chipping away at its market share. Axonics has already won several patent fights with its competitor, but it will need to continually innovate to grow its business.