There’s a Revolution in Cancer. But Can Big Pharma Afford It?
Revolution Medicines could soon launch a pancreatic-cancer drug. Its stock may already be beyond what established pharmaceutical firms can pay.
There may soon be a drug for pancreatic cancer. For patients who have faced one of medicine’s most merciless diagnoses, it is a genuine breakthrough.
For Wall Street, it raises a different question entirely: Can anyone afford to acquire the drug’s developer?
Revolution Medicines RVMD has advanced what could turn out to be one of the most important cancer drugs in a generation. In a late-stage clinical trial, its pill nearly doubled survival compared with chemotherapy. Approval from the U.S. Food and Drug Administration could come later this year.
Normally, this is the point at which a promising biotech gets acquired. That is the sector’s basic bargain: Early investors back unproven science, then exit when Big Pharma writes a check. But every now and then, a company—often led by founders with unusual conviction—simply grows out of reach. That is what happened with Vertex Pharmaceuticals, Regeneron Pharmaceuticals, and a few others. It could now be happening with Revolution Medicines.
Betting on a near-term takeover, while not impossible, may no longer be the right way to think about RevMed. A deal could still happen, of course. But investors might need to grow comfortable with a longer-term view. It won’t be easy, but the path to becoming an industry giant runs through the science.
RevMed’s pill, daraxonrasib, targets a protein called RAS that, when mutated, fuels the majority of pancreatic tumors. Scientists long struggled to drug RAS because its smooth surface offered no obvious place to grip. Daraxonrasib bypasses that problem by acting as a molecular glue, binding to a separate protein inside the cell and using the combined surface to seize RAS directly.
Pancreatic cancer alone should generate billions in annual sales. But RAS mutations drive tumors in other cancers like lung and colorectal too, and RevMed is already generating promising early data in those indications.
Big Pharma needs this type of innovation: About $300 billion in annual sales will disappear by early next decade due to patents expiring. That explains why dealmaking has hit a frenzy. Earlier this year, RevMed held talks with Merck and AbbVie at a valuation of around $30 billion, but no deal was reached. Since then, the stock has surged to nearly that market cap, meaning any acquirer today would likely need to pay $40 billion or more. Investment bankers say appetite for deals at that scale is limited—and RevMed’s recent $2 billion offering of stock and convertible notes suggests a transaction isn’t imminent.
Merck, a powerhouse in cancer with its blockbuster Keytruda soon going off patent, would be a logical buyer. But Merck has spent roughly $25 billion on acquisitions in the past year, leaving little room for a megadeal without threatening its investment-grade credit rating. AbbVie once accepted a downgrade to buy Allergan, and recovered. But that kind of risk has grown rarer. Stock deals are another option, but patent pressures have left the large drugmakers that most need a big deal at depressed multiples, making equity expensive currency. The rare companies with balance-sheet capacity, like Johnson & Johnson and Eli Lilly, have shown little appetite for deals at this scale.
Which brings the question back to what RevMed becomes if no deal materializes. The history of biotechnology offers a guide. Companies that are first to crack a genuinely hard problem can stick it out, keep innovating, and grow into businesses that far exceed what any acquirer would have paid.
Take Vertex Pharmaceuticals. Once a perennial takeover candidate, it built a dominant cystic-fibrosis franchise and became an acquirer in its own right, spreading its bets from gene editing to pain. It is now worth more than $100 billion. Regeneron, founded in 1988, spent decades as a speculative science project before massive blockbusters in ophthalmology and immunology turned it into a giant, now worth around $80 billion. The company’s scientist co-founders, Leonard Schleifer and George Yancopoulos, are still at the helm more than 35 years later.
RevMed controls RAS biology more comprehensively than any company with meaningful data, notes Will Sevush, a healthcare strategist at Jefferies. Beyond daraxonrasib, it possesses a pipeline of mutation-specific programs in lung and colorectal cancer, and combination trials already under way that could extend the franchise for years.
RevMed could face challengers. Erasca, a biotech whose surging stock has given it a $6 billion market cap, is developing an earlier-stage RAS-targeting pill that some analysts believe could eventually rival daraxonrasib. But that threat remains years away.
In a sector where the usual playbook is to hold until a buyer comes, RevMed increasingly looks like a case for holding to build.