Choosing the best drug stocks to buy can be dicey because drug stocks have disadvantages and advantages.

On the negative side, you often have to wait many years for promising drugs to prove themselves in clinical trials. Consequently, you may need to hold into the best drug stocks for some time before they generate strong profits.

The positive aspect of drug stocks is that they can zoom much higher very quickly once their drugs do show that they are safe and effective.

With all of that in mind, let’s take a look at some drug stocks to buy. These names look very well-positioned to generate large profits for investors in 2023 and in subsequent years.

In this column, I included two names —Bionano (NASDAQ:BNGO) and iCAD (NASDAQ:ICAD) — that are not technically drug stocks. However, their products, like drugs, make diseases much less likely to harm people.

BNGO	Bionano	$1.64
VRNA	Verona Pharmaceuticals	$22.33
MDGL	Madrigal	$278.55
VTVT	vTv Therapeutics	$.70
ICAD	iCAD	$1.57
SDGR	Schrodinger	$19.42
GSK	GSK’s	$35.32

Bionano Genomics (BNGO)

Studies continue to highlight the ability of Bionano’s optical genomic mapping (OGM) tools to greatly advance scientific research and help enhance the condition of a multitude of patients.

For example, in a recent paper, a group of scientists found that OGM revealed eight previously missed structural variations in DNA that have a role in causing inherited renal disease (IRD). The scientists concluded that the information they obtained from OGM will enable them and other professionals to “avoid missing pathogenic events in future analyses. ”

Those achievements should lead to better outcomes for some patients who have IRDs. Additionally, identifying more genes that cause IRDs increases the likelihood of scientists being able to find cures and treatments for the diseases.

CEO Erik Homlin revealed on Bionano’s third-quarter earnings call, that the Center for Medicare and Medicaid Services, or CMS, had agreed to reimburse entities for the use of OGM “for  the analysis of ] constitutional genetic disease.”

As more studies demonstrate the effectiveness of OGM in detecting structural variants that cause disease, insurers will agree to reimburse scientists and healthcare professionals for the use of OGM in other areas. That development, in turn, will spur much greater adoption of Bionano’s OGM tools, lifting BNGO stock in 2023 and in subsequent years.

Verona Pharmaceuticals (VRNA)

Verona Pharmaceuticals (NASDAQ:VRNA) is a good example of a pharmaceutical stock that soared after its COPD treatment proved to be safe and effective in a Phase III trial.

Specifically, the company’s “inhalable mist,” known as “nebulized ensifentrine,” meaningfully enhanced patients’ “lung function, symptoms and quality of life measures.”

Additionally, the mist significantly lowered the number of times that COPD patients’ symptoms deteriorated. Finally, nebulized ensifentrine was “well-tolerated,” Verona reported. The latter statement indicates that the treatment did not cause any major, adverse conditions in the patients taking it, suggesting that the treatment is safe.

Verona stated that it would seek to obtain FDA approval for its mist in the first half of next year.

According to the American Lung Association, ” More than 12.5 million people have been diagnosed with COPD” in the U.S. If 10 million insured Americans are prescribed Verona’s ensifentrine and insurers pay $7,000 annually for it, that’s $7 billion of annual revenue. And the company could easily generate significant sales from the drug in Europe as well.

Even after yesterday’s rally, VRNA stock’s market cap is only $982 million. If the FDA approves the drug , Verona markets it well, many insurers cover it and many doctors prescribe it, VRNA stock could easily jump above its current levels starting next year.

Madrigal Pharmaceuticals

Madrigal (NASDAQ:MDGL) is in a similar situation as Verona except that Madrigal’s drug, which delivered strong results in a Phase III trial, helps patients with a disease for which there is currently no treatment.

The company’s rensifentrine drug is a treatment for nonalcoholic steatohepatitis, or NASH. People with NASH suffer from “inflammation and liver damage,” and the disease can be fatal.

Among the NASH patients who received a high dose of rensifentrine in a Phase 3 study, 30% were essentially cured. Like Verona, Madrigal indicated that its drug was safe and that it would soon seek the FDA’s approval of its treatment.

In the wake of the trial’s results, Goldman Sachs estimated that Madrigal’s drug has a 90% chance of being successful and raised its price target on the name to $375 from $178. The shares closed at $250 on Dec. 20.

It’s estimated that roughly 5% of adults in the U.S. have NASH. If 3% of all U.S. adults, or 6 million people, all of whom are insured, receive Madrigal’s treatment and the drug costs $15,000 annually, that’s $30 billion of annual sales for the company just from America.

Madrigal’s market cap as of the close of trading on Dec. 21 was just $4 billion. Given the potential of the company’s drug, the shares could easily soar ten times over the next few years and surge a great deal next year.

vTv Therapeutics (VTVT)

vTv (NASDAQ:VTVT) is at an earlier stage than Verona and Madrigal, as vTv has not yet initiated the Phase 3 trial of its Type 1 diabetes drug, TTP399. However, the company plans to launch such a trial next quarter.

Moreover, there are three important indications that the trial will yield successful data and that the drug will ultimately be approved.

First, in a Phase 2 trial, “TTP399 showed a 40% reduction in hypoglycemic episodes compared to placebo.” Secondly, as vTv explained, “In April 2021, the FDA granted Breakthrough Therapy designation to TTP399 for the treatment of” Type 1 diabetes. The agency only grants such a status, which makes it easier for a drug to be approved, if it is optimistic about the treatment’s outlook.

And finally, two other, major healthcare companies–G42 Healthcare and CinRx Pharma – have agreed to invest $25 million and $14 million, respectively, in vTv.

I don’t believe that these companies, which obviously have some expertise in healthcare, would agree to invest significant sums in vTv unless they were optimistic about the prospects of its main drug candidate, TTP399.

In the U.S., there are 1.45 million people with Type 1 diabetes, for which there is currently no treatment besides insulin. If TTP399 is ultimately prescribed to 1.2 million insured Americans annually, at a price of $10,000 per patient, vTv’s annual revenue from the U.S. would come in at $12 billion. The company could also generate a significant amount of sales from the drug ion Europe.

As of the end of the trading day on Dec. 20, the market cap of VTVT was just $58 million. As a result, in a few years, the stock’s value could easily jump 20, 30, or even 50 times over several years.

And once indications begin suggesting that the Phase III trial could be successful next year, the shares should jump.

iCAD (ICAD)

As I pointed out in a recent column, iCAD recently announced a huge agreement with Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) Google Health. Under the deal, the tech giant’s artificial intelligence will be added to iCAD’s “breast imaging” offering.

The agreement should incentivize Alphabet to use its massive marketing power to boost the adoption of iCAD’s offering, greatly raising the latter company’s top and bottom lines and boosting ICAD stock.

Moreover, Google Health’s decision to partner with iCAD should “should validate iCAD’s technology” in the minds of iCAD’s potential customers, making it easier for both iCAD and Google Health to sell the latter company’s product.

Noting that iCAD was trading at just 1.5 times analysts’ average sales estimate for the company as of last month, Seeking Alpha columnist Biologics called the stock undervalued in its Nov. 4 article. That column was published before iCAD announced its deal with Alphabet.

Schrodinger (SDGR)

Schrodinger (NASDAQ:SDGR) uses artificial intelligence to speed up the development of its own drugs. It also licenses its AI technology to major drug makers.

On Dec. 12, SDGR reported that one of its drugs, called SGR-2921, had shown “strong anti-tumor activity” in lab tests involving “multiple acute myeloid leukemia (AML) models,” AMLs are cancers of the blood.

Sxhrodinger added that its drug had successfully undermined AML tumors that were “resistant” to other treatments.

This development gives SDGR a potential blockbuster treatment that could generate huge amounts of sales five or six years down the road. It also demonstrates to large drugmakers that Schrodinger’s technology can identify potential blockbuster drugs. As a result, the news should enhance Schrodinger’s ability to make partnership deals with more major drugmakers.

GSK (GSK)

In recent weeks, there has been new evidence that GSK’s (NYSE:GSK) dostarlimab (which I’ve written about in the past) is very well-positioned to become a blockbuster cancer treatment.

Dostarlimab, in combination with chemotherapy, significantly improved the status of patients with endometrial cancer, a recent study found. And in another recent trial, GSK’s drug in combination with chemotherapy achieved a 46% overall response rate (ORR), versus a 37% ORR for Merck’s (NYSE:MRK) Keytruda.

And as I noted in a previous column, in another study, ” all 18 rectal cancer patients who took [dostarlimab] appeared to be completely cured. And they did not have any major side effects.”

Also importantly for GSK, a federal court decided that the drugmaker could not be held liable for cancer allegedly caused by the anti-heartburn drug, Zantac. Although the ruling only applies to cases in federal court, it should make GSK’s arguments about the matter in state courts much more potent. In other words, in the wake of the ruling, the chances of GSK being held liable in state courts has greatly decreased.

Once the lawsuits against GSK are dismissed in state courts, institutional investors will likely feel much more comfortable about buying GSK stock.

The forward price-earnings ratio of GSK stock is a low 9.5, versus Merck’s 15.

On the date of publication, Larry Ramer held long positions in BNGO, SDGR, and VTVT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.