After a tumultuous 2022, growth stocks have started to regain their footing in 2023. Small- and mid-cap growth stocks, in particular, have seemingly benefited from a fair amount of bargain hunting during the opening weeks of the new year.
Nowhere is this pattern more evident than the beaten-down biopharmaceutical space. Clinical-stage and early commercial-stage biopharma stocks were routed last year over concerns about rising interest rates. The bellwether SPDR S&P Biotech ETF, for instance, lost a staggering 25.8% of its value in 2022. However, this closely watched biotech fund has inched higher by nearly 4% over the first six weeks of 2023.
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On a more nuanced scale, this bargain hunting becomes even more apparent. For example, Editas Medicine (EDIT -3.08%) and Exact Sciences (EXAS -5.91%) fell by 66.5% and 36.4% respectively over the course of 2022. Since the change in the calendar year, Editas stock has risen by a healthy 16.8% and Exact's shares have stormed higher by a noteworthy 33.6%.
Which of these rebounding biopharma stocks is the better buy-and-hold in 2023? Let's dig deeper to find out.
The case for Editas Medicine
Editas is a clinical-stage gene-editing company. Its editing platform is based on CRISPR technology. The biotech's shares crumbled last year due to clinical setbacks and the steady progress of a key competitor. On the competitive front, CRISPR Therapeutics and Vertex Pharmaceuticals submitted their CRISPR-based sickle cell and beta thalassemia candidate, exa-cel, for regulatory approval in multiple territories in November 2022. Editas' lead candidate, known as EDIT-301, appears to be several years away from a potential regulatory filing.
Earlier this year, Editas announced a reorganization plan centering around accelerating the development of EDIT-301. Some analysts think this strategy could yield worthwhile financial results in the back half of the decade. As such, there is a real possibility that Editas' stock might be significantly undervalued right now. That being said, the company faces an uphill battle in this highly competitive rare disease indication.
The case for Exact Sciences
Exact Sciences is a leading cancer and infectious disease diagnostics company. The company's top line has risen at a blistering compound annual growth rate of 46% over the past five years. Most of this sales growth stems from the novel colon cancer screening test known as Cologuard. In 2022, Cologuard generated an outsize portion of the company's $2 billion-plus in annual sales. Despite this impressive sales growth, however, Exact remains unprofitable.
Exact's long-term outlook is overall bullish. While competition from top companies like Illumina may hurt its chances at establishing a formidable moat in the liquid biopsy arena, Exact only needs to capture approximately 10% of this $30 billion market to more than double its current revenue. That's a very achievable goal given that this market isn't overly competitive.
All that being said, Exact's shares are bumping up against Wall Street's fair value estimate at the moment. So, for its stock to churn even higher as the year progresses, the company may have to exceed analysts' quarterly revenue expectations in the months ahead.
The verdict?
Exact is the hands-down winner in this head-to-head comparison. The cancer diagnostic pioneer has a proven business model and a fairly encouraging long-term outlook. That's not to say Editas stock can't also continue to rebound in 2023. But the biotech faces a far tougher path from a value creation standpoint than Exact at this point in their respective lifecycles.
