Investing in biotechnology companies can be a risky proposition. Regulatory setbacks or negative results from clinical trials are sometimes enough to send shares falling off a cliff. But biotech companies can also offer explosive growth, provided you pick the right ones. And before investing in a biotech company, it's essential to look at the financial opportunity offered by its current lineup of products (or most promising pipeline candidates), both in the short and long run.

Two biotechs whose lead products offer great potential are Vertex Pharmaceuticals (NASDAQ: VRTX) and Biogen (NASDAQ: BIIB). Let's see why both of these companies are worth investing in today.

Doctor and patient shaking hands looking happpy.

Image source: Getty Images.

1. Vertex Pharmaceuticals

Biotech giant Vertex Pharmaceuticals focuses on developing treatments for rare diseases. The company is best known for its suite of medicines that treat cystic fibrosis (CF), a potentially deadly genetic condition that affects a patient's internal organs, including the lungs and the digestive system. CF affects 75,000 people in the U.S., Australia, and Europe, and there are 1,000 new cases diagnosed in the U.S. every year.

Because there are more than 100 mutations of the gene that causes CF, it's been hard to develop a single medicine that can treat the entirety of this patient population. However, back in October 2019, the U.S. Food and Drug Administration (FDA) approved Vertex's Trikafta, a therapy that can treat up to 90% of CF patients.

Last year, Trikafta generated $3.9 billion in sales and that number will rise to $8.7 billion in 2026, according to the research company Evaluate Pharma, making it among the 10 best-selling drugs in the world. With that said, there are other reasons why Vertex Pharma is a buy.

The company boasts several exciting pipeline programs, including CTX001, a gene-editing therapy for sickle cell disease (SCD) and transfusion-dependent beta-thalassemia that it's developing in collaboration with CRISPR Therapeutics. If CTX001 earns regulatory approval, it would be a major achievement since there are currently few therapy options for those two blood-related disorders. The ones that exist (including stem cell transplants) are rife with risks.

CTX001 has shown the ability to eliminate the need for blood transfusions in TDT patients up to 26 months after treatment. It has also successfully freed SCD patients of painful side effects of the illness called vaso-occlusive crises, up to 22 months post-treatment.

During the company's first-quarter earnings conference call, Vertex CEO Reshma Kewalramani said that a regulatory submission for CTX001 "may be possible in the next 18 to 24 months." Vertex Pharma does have other pipeline candidates, and the company generated a little more than $3 billion in free cash flow over the past year, allowing it to acquire more promising programs from other biotechs if necessary.

Lastly, now is an excellent time to buy this stock because it has severely underperformed of late. Shares of Vertex Pharma are down 34% in the past year, while the S&P 500 is up by 31% in the same period. Vertex's current price-to-earnings (PE) ratio is 19.06 -- which is about as low as it has been in two years -- and its forward PE stands at 18.39, which is also low by its standards. At current levels, this biotech stock is definitely a buy.

Person holding a small piece of paper that says "FDA Approved."

Image source: Getty Images.

2. Biogen

Biogen's prospects didn't seem so great just 12 months ago. In June 2020, a judge invalidated a patent on Biogen's multiple sclerosis (MS) drug Tecfidera. The company has been facing biosimilar competition for this product since the second half of 2020, and its sales have declined quite a bit as a result.

Last year, it also seemed unlikely that Biogen's drug for Alzheimer's disease (AD) Aduhelm (aducanumab) would earn regulatory approval since an independent panel convened by the FDA almost unanimously voted against giving the drug the green light.

But against all odds, Aduhelm did earn regulatory approval, and although Tecfidera's prospects haven't changed, the AD drug alone is enough to brighten Biogen's future significantly. Note that Aduhelm is the first AD drug approved by the FDA since 2003, and it is also the first of its kind to target one of the rumored causes of this invasive illness: the accumulation of beta-amyloid protein in the brain.

It won't be cheap; the cost of a one-year course for the treatment will be $56,000. There are 6 million AD patients in the U.S., but the FDA emphasized that Aduhelm should be prescribed to patients with "mild cognitive impairment or mild dementia stage of disease."

Even so, Aduhelm is likely to rack up well over $1 billion in sales within the next couple of years. Biogen has many more pipeline programs, including half a dozen in late-stage studies. There is no doubt the company will look to diversify its revenue source away from Aduhelm in the coming years.

And even though the biotech's shares have already benefited from the approval of the AD drug -- with its stock up by 34.1% year to date -- I believe there is significant upside left for the company, especially once sales of Aduhelm start coming in.

Biogen's PE and forward PE are 17.05 and 17.36, respectively. While those metrics have risen for the company since the beginning of the year, they are justified by its prospects in the AD market, making Biogen's stock a buy right now.

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Prosper Junior Bakiny owns shares of Vertex Pharmaceuticals. The Motley Fool owns shares of and recommends CRISPR Therapeutics. The Motley Fool recommends Biogen and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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