There is no denying that the biotech industry can be pretty risky and volatile, but there are also advantages to investing in stocks in this sector. First, there is always a need for innovative therapies, which is what many biotechs are seeking to develop. Second, patients don't get to be too picky about when they need medical treatments -- these are must-have products even amid economic downturns.
These features can allow biotech companies to deliver solid financial results and stock performances for a while, provided they perform the difficult task of developing new treatments. With that in mind, let's look at two biotech stocks that could earn excellent returns through the next decade: CRISPR Therapeutics (CRSP 0.34%) and Axsome Therapeutics (AXSM 0.27%).
1. CRISPR Therapeutics
CRISPR Therapeutics is a clinical-stage gene-editing expert. The company's pipeline features exa-cel, its most advanced candidate that is currently being considered for approval, as well as several other programs in earlier stages. Exa-cel, developed together with Vertex Pharmaceuticals, treats sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT), two rare diseases of the blood.
CRISPR Therapeutics and Vertex could start launching the drug next year, provided everything goes according to plan. Exa-cel should be an important growth driver for CRISPR Therapeutics in the next decade. While it plans to initially target only 32,000 SCD and TDT patients, gene editing therapies aren't cheap. Expect a price well over $1 million for the medicine.
Further, Vertex and CRISPR could expand the population of eligible patients to the hundreds of thousands. It isn't a sure thing (label expansions rarely are), but if the partners pull that approval off somewhere down the line, it would be a big deal. CRISPR should also land other major approvals through the next decade, especially if it can finally prove the power of its gene-editing platform with a regulatory nod for exa-cel.
The company boasts six other programs in clinical trials that target various forms of cancer and type 1 diabetes, for which it is seeking a functional cure. Funding shouldn't be a significant issue for CRISPR Therapeutics either -- it often is with smaller biotechs -- if exa-cel earns the green light. The company's partnership with Vertex has helped a lot, too.
CRISPR ended the second quarter with $1.8 billion in cash, equivalents, and marketable securities, a good amount for a company with a market capitalizaion of $3.2 billion. CRISPR Therapeutics isn't the largest or most prominent biotech company around, but in the next 10 years the company could deliver market-beating returns.
2. Axsome Therapeutics
Axsome Therapeutics has two products on the market: depression treatment Auvelity, and narcolepsy (a sleep disorder) therapy Sunosi. However, the company's portfolio should get much larger in the coming years. Sunosi itself is being investigated in treating ADHD, while Auvelity is undergoing a late-stage study in treating agitation (aggressive and restless symptoms) in Alzheimer's disease patients.
Further, Axsome has a trio of other programs that are in late-stage studies or have already aced phase 3 trials. Its late-stage pipeline is what makes Axsome attractive. It certainly isn't the biotech's financial results. In the second quarter, the company's revenue of $46.7 million increased substantially from the $8.8 million reported in the year-ago period. On the bottom line, Axsome delivered a net loss per share of $1.54, worse than the loss per share of $1.06 recorded in the prior-year quarter.
The company's cash balance as of the end of the quarter was $437.1 million, which included net proceeds from a common stock offering it conducted in June. Smaller biotechs often resort to dilutive forms of financing, so that's not too surprising, although it's not a move investors love. On the positive end, Axsome Therapeutics' lineup should be much more robust in two years, with more revenue from its products.
After all, Auvelity has only been approved for a little over a year. Axsome Therapeutics estimates that its late-stage pipeline and currently approved indications target more than 160 million patients. At Axsome's market capitalization of just $3 billion, the market isn't fully factoring in its potential, in my view. That's why investors should strongly consider buying the stock and holding on through the next decade.
