Revolution Medicines Is Up 97% This Year: Here Are the Bull and Bear Cases for This Soaring Biotech Stock.

Revolution Medicines (NASDAQ: RVMD) looks unstoppable. The clinical-stage biotech company has been riding the wave of impressive clinical progress, sending its stock price up nearly 100% this year alone and about 285% over the past 12 months, as of this writing. The market clearly has high hopes for Revolution Medicines, but can the company live up to the expectations? Let's consider the bull and the bear case for this drugmaker.

The bull case: revolutionizing the cancer market

Revolution Medicines focuses on developing drugs for RAS-addicted cancers. RAS is a family of proteins that act as molecular switches in controlling cell growth. They can be turned "on" or "off." In RAS-addicted cancers, mutations keep RAS stuck in the "on" position, and the cancer cells become dependent on that constant growth signal to proliferate. Revolution Medicines is targeting this category because it is a vast, high-unmet-need space. The company's targets include pancreatic cancer, colorectal cancer -- the second leading cause of cancer death in the world -- as well as the first on that list, lung cancer.

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Revolution Medicines may not have any products on the market, but its leading candidate, daraxonrasib, has already shown strong clinical trial results. In a phase 3 study that enrolled patients with previously treated metastatic pancreatic cancer, daraxonrasib posted an overall survival of 13.2 months, compared with 6.7 months for patients on chemotherapy. Being tested against the standard of care (not just against a placebo) in this study suggests that daraxonrasib could become the new standard of care in patients in this niche.

Revolution Medicines is running clinical trials for daraxonrasib in other indications, including a phase 3 study in non-small cell lung cancer (NSCLC). Revolution Medicines has other candidates as well. The company's zoldonrasib is being studied in NSCLC. Provided these candidates receive approval, Revolution Medicines could be looking at peak sales of well over $1 billion for both, if all goes well. For instance, some analysts predict that daraxonrasib could eventually generate $8.5 billion in revenue annually in the metastatic pancreatic cancer market alone. And if it earns approval across many other fields, it could peak at much higher levels than that. That's why the market is excited about Revolution Medicines' prospects.

The bear case: What if something goes wrong?

Revolution Medicines faces the same risks as other clinical-stage biotechs. The company generates no revenue and is consistently unprofitable. Clinical and regulatory setbacks with its leading candidate will sink the stock price. Further, Revolution Medicines is worth $33.6 billion. That's an almost unheard-of valuation for a clinical-stage biotech. By comparison, consider that Biogen, a well-established biotech company with a large drug portfolio and a solid pipeline, has a market cap of only $29.3 billion. So, the market thinks Revolution Medicines is worth about $4 billion more than Biogen.

On the one hand, it makes some sense. The market is, after all, forward-looking. And while Biogen has struggled in recent years and has a somewhat dim outlook, Revolution Medicines appears to have developed medicines that could establish dominant positions in one of the industry's largest therapeutic areas, typically dominated by pharmaceutical giants. The company's most advanced drug is significantly de-risked, too, having aced a phase 3 study on efficacy measures while showing a reasonable safety profile.

Still, at current levels, Revolution Medicines' success is already well-baked into the stock price, and any perceived issue will send its shares off a cliff. In other words, Revolution Medicines is a risky stock. My view is that interested investors should wait for a pullback before initiating a small position in the company and progressively add to it as the drugmaker continues to make clinical progress.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.