Revolution Medicines Won FDA Approval One Month After Filing. Analysts See $11.5 Billion in Peak Sales. Is the Stock Still a Buy After Skyrocketing More Than 5X?

Well, that sure was quick.

Within weeks of submitting its promising daraxonrasib to the Food and Drug Administration (FDA), Revolution Medicines (NASDAQ:RVMD) won full approval from the American regulator on Wednesday. That's lightning-quick for getting a green light in this country, and it brought significant attention to the company. It also, unsurprisingly, gave the biotech a meaty share price pop. Daraxonrasib, which has been brand-named Rasonque, is undoubtedly a high-potential drug. But has it propelled the company's stock into overvalued territory?

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The breakout of a breakthrough drug

Rasonque, which is administered once daily as a pill, was approved to treat metastatic pancreatic cancer in adults who have either received prior systemic therapy for the disease or are ineligible for combination therapy.

It's a new breed of cancer drug that works by blocking several forms of the RAS protein (a sort of on-off switch that regulates cell growth) and using a novel "molecular glue" mechanism.

Pancreatic cancer is a notoriously difficult form of the disease to treat. As such, Rasonque was an appropriate drug candidate for the Commissioner's National Priority Voucher (CNPV) program. This initiative, launched last year, aims to reduce the FDA's drug approval process from the typical ten months to one year to a matter of weeks. Only a limited number of vouchers are available under the program; Revolution's then-developmental treatment received one shortly after the company filed its application.

In the press release heralding the FDA's nod, the biotech quoted CEO Mark Goldsmith as saying that Rasonque "is a monumental step forward for patients with pancreatic cancer and for the oncology field."

"This approval further validates our bold RAS(ON) inhibitor strategy that includes multi-selective and mutant-selective approaches targeting a major driver of pancreatic cancer and multiple other cancers," he added.

Success in the lab

Revolution landed on the radar of many investors and healthcare professionals in April. That's when the biotech presented Phase 3 data for the drug, demonstrating statistically significant and clinically meaningful improvements across all primary and secondary endpoints. It also compared very well with traditional chemotherapy and was well tolerated, with a manageable safety and quality-of-life profile.

Any drug performing that well in a late-stage trial will attract the right kind of attention. What compounded this exponentially for Revolution is that it treats a form of cancer -- an understandably high-demand segment of the market -- and does so in a novel and clearly efficacious way. From that April readout to now, Revolution's stock has largely been on a rocket ride to the heavens. Zooming out a bit, it's risen a massive 178% in price year to date, compared to under 13% for the benchmark S&P 500 index.

Looks like a buy, even at the high

Few Revolution-watchers doubt that Rasonque has immense potential. Analysts at RBC Capital Markets estimate that the drug could reach $28 million in sales this quarter, and it has only just received its green light. Looking ahead, RBC believes it could book $11.5 billion in annual sales worldwide. It's almost certain to be approved in numerous other jurisdictions, and some might be close at hand -- in early July, the 27-member European Union's European Medicines Agency granted its form of accelerated review to Revolution's application.

I think that annual sales estimate might even be modest. That's because Revolution designed Rasonque as a broad-spectrum RAS inhibitor that could ideally treat similar malignancies; estimates place RAS mutations at 30% of all solid tumors. The company is actively working on a label-expansion strategy to earn approval for the drug to treat other cancers.

To me, then, with Rasonque in its portfolio, Revolution has a very high ceiling as a business, and therefore as a stock. It's still looking very much like a compelling buy candidate to me.

Eric Volkman 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.