A few successful drugs are all that are required for a biotech company to shine. We saw this happen with Moderna, a biotech company that grew from $4 billion to $52 billion in market capitalization. Its stock price has risen by 100% in the last three years, owing to the successful rollout of its coronavirus vaccine.
Some biotechs make drugs for difficult-to-treat diseases that will be required regularly for a long time. These businesses have excellent long-term prospects. Let's take a look at two such growth stocks that could give your portfolio a significant boost in the long run.
Why Vertex Pharmaceuticals?
Vertex Pharmaceuticals (VRTX 0.19%) is well-known for its star product, Trikafta, a cystic fibrosis (CF) medicine. In 2022, this drug alone generated $7.6 billion in revenue out of an overall product revenue of $8.9 billion for the year. In the most recent first quarter, Trikafta contributed nearly $2.1 billion of the $2.3 billion in total product revenue.
Vertex's revenue is currently drawn entirely from CF drugs. Management anticipates that revenue from CF products will be in the $9.5 billion to $9.7 billion range for the full year.
Many other drug manufacturers have failed to develop an effective cystic fibrosis therapy, so there are very few competitors in the field of CF treatment. What's more, AbbVie recently said it's discontinuing its CF program entirely. This is likely why Vertex's product is in higher demand now, as it has been tried and tested.
However, Vertex is wary of relying exclusively on one product to generate revenue, and is expanding into a variety of other fields. In collaboration with partner CRISPR Therapeutics, it recently completed regulatory submissions for exa-cel, a gene therapy to treat both beta-thalassemia and sickle cell disease. If and when exa-cel is approved, Vertex could have another game-changing product on the market.
Vertex also intends to create a type 1 diabetes treatment using CRISPR's advanced gene-editing technology (CRISPR-Cas9). In the first quarter, the company's R&D expenses totaled $742 million.
A strong balance sheet and ongoing efforts to develop high-quality, effective drugs could propel Vertex Pharmaceuticals to the forefront of the biotech industry, making it a no-brainer stock to own right now.
Why Axsome Therapeutics?
The stock of biotech Axsome Therapeutics (AXSM 0.94%) was a standout last year, gaining 104% and defying the bear market. Sunosi, which Axsome acquired from Jazz Pharmaceuticals in May 2022, and Auvelity, which it developed in-house, are two of its most successful products right now.
Sunosi is used to treat excessive daytime drowsiness caused by narcolepsy. In the most recent quarter, the drug made $13 million in sales in the United States alone.
Auvelity is used to treat major depressive disorder (MDD). It was launched in October of last year, so the first quarter marked the company's first full quarter of sales, which totaled $15.7 million. Cases of MDD have increased dramatically since the pandemic began, making Auvelity a blockbuster drug.
Once it's available in international markets, Auvelity could see a sales boost. Sunosi has already made $1.7 million in international sales, and is generating revenue for the company through royalty and licensing.
In the first quarter, its two commercialized products brought Axsome $94.6 million in revenue. The company is not yet profitable. But two approved treatments, two exciting new drug candidates in late-stage development, and additional potential therapies in its pipeline could help it become profitable in the near future.
Axsome spent $18 million on research and development (R&D) during the first quarter. The majority of its products are in phase 2 or later trials, which indicates that most of these products are at least somewhat effective. Axsome's late-stage pipeline development could significantly increase revenue in the coming years.
There are still risks
Biotech companies with innovative therapies have a lot of room for expansion, but they also carry risks. Clinical trials can fail, and regulatory approvals can be denied. Many companies incur huge losses until they have a successful product that generates consistent revenue.
However, Axsome and Vertex appear to be safe for now. They already have a few successful products that are propelling growth.
Axsome had $246 million in cash and cash equivalents at the end of the first quarter. Management believes that sum, along with the remaining balance on a $350 million term loan facility, will be enough to pay for upcoming product developments and assist the company in being cash-flow-positive soon.
Meanwhile, at the end of the first quarter, Vertex had a hefty cash balance of $11.5 billion. The financial stability of both companies appears to be sufficient for funding their pipeline development.
Both companies have a robust drug pipeline with the potential to propel them to a larger and more diverse business in the next decade. However, given the risks of investing in healthcare and biotech companies, it would be prudent to combine these stocks with a diversified portfolio of stable stocks.