Revolution Medicines' Pancreatic Cancer Drug Nearly Doubled Survival. Is the High-Flying Stock Still a Buy?

Shares of Revolution Medicines (NASDAQ: RVMD) have taken off so far this year, rising more than 150%. That jump shows what can happen when a clinical-stage biotech company gets its first approval and it's a potential blockbuster.

In August, the Food and Drug Administration (FDA) approved Rasonque to treat previously treated metastatic pancreatic cancer, after the therapy was shown to nearly double the overall survival time for previously treated patients with metastatic pancreatic adenocarcinoma.

The drug now has an excellent chance of getting label expansions to treat other types of pancreatic cancer, which affects 67,530 people annually in the U.S. It is also being tested to treat non-small cell lung cancer (NSCLC) and other solid tumors.

Here are three reasons why the stock is a buy.

Its pipeline is a game changer

When Rasonque's trial results were presented at the American Society of Clinical Oncology in May, those assembled gave the announcement a standing ovation. The drug works where others have failed to treat RAS proteins because it attaches RAS to another protein, cyclophilin A, which shuts off RAS' ability to drive cell growth and division.

There were three reasons the approval was a big deal. Not only was it Revolution's first approval, but it validated the company's approach toward treating various RAS-addicted cancers. Variants in the RAS family (HRAS, NRAS, and KRAS) are among the most common mutations found in cancer. RAS proteins fuel between 20% and 30% of cancers. Until Rasonque's approval, RAS variants were considered undruggable targets because RAS proteins have few suitable small-molecule binding sites in their mutant isoforms.

The stock is undervalued

Despite the stock's sharp uptick so far this year, many investors are still playing a waiting game on the shares. Even after multi-year price gains, consensus analyst targets remain meaningfully above prevailing trading levels, with the average price target at $258.84 and the highest at around $320 per share.

Institutional ownership exceeds 90%, reflecting strong confidence from specialized healthcare funds. As the company moves toward full-scale commercialization, revenue from its pipeline could comfortably justify a valuation closer to established commercial-stage oncology leaders.

It's not making money yet, but...

Revolution released its third-quarter earnings on Nov. 4. The company reported $198 million in revenue, all from Rasonque sales in the five weeks since its launch. Revolution lost $407.5 million, compared to a loss of 305.2 million in the same quarter a year ago.

That lack of profitability will probably only hold the stock back for a while. Daraxonrasib, the molecule in Rasonque, is in three other phase 3 trials, including two to treat advanced pancreatic cancer types and one to treat NSCLC.

Zoldonrasib, another RAS inhibitor, is in three phase 3 trials to treat pancreatic ductal adenocarcinoma (PDAC) and NSCLC, and Elironasib, also a RAS inhibitor, is in phase 1/2 trials to treat NSCLC and solid tumors and has just initiated trials to treat colon cancer.

Rasonque's approval has de-risked the platform's biological mechanism. As traditional biotech pricing models frequently discount early- to mid-stage oncology pipelines until phase 3 registration trials conclude, there's substantial room for the stock to reprice upward as regulatory approval pathways accelerate.

James Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.