Though it’s still quite early in the year, pharmaceutical startup Revolution Medicines (NASDAQ:RVMD) has gotten off to a blistering start, rising by more than 50 percent in the last five days. The startup, which is developing several drugs for cancer treatment, had already been sitting on very strong 12-month gains stemming from growing expectations about the value of its drug pipeline. Why is RVMD suddenly up so much, and could Revolution Medicines be a good stock to own through the rest of 2026?
Why Is RVMD Soaring Right Now?
Although Revolution Medicines had already delivered strong gains over the last year, the sudden surge in the last handful of trading days came as the result of unverified reports of a potential buyout by pharma giant Merck (NYSE:MRK). According to information first reported by The Financial Times, Merck is in talks to buy out Revolution at a total price of between $28 and $30 billion, far above its current market capitalization.
Interestingly, Merck may not be the only outside buyer looking to acquire Revolution Medicines. Though no specific names were revealed, The Financial Times also reported that other businesses in the industry were eyeing Revolution as a potential acquisition target. This could create a favorable bidding atmosphere for RVMD shareholders, especially those who had bought the stock prior to its recent run.
Revolution’s Pipeline Is Interesting
The interest in Revolution Medicine from larger pharmaceutical firms stems from its oncology pipeline. Among Revolution’s most promising drugs is daraxonrasib, which in October was granted an Orphan Drug Designation from the FDA for pancreatic cancer. Daraxonrasib is currently in a Phase 3 clinical trial for pancreatic cancer, and two more are planned for the near future. Interestingly, however, daraxonrasib could have the potential to treat cancers outside of the pancreas. The drug is an RAS inhibitor, potentially making it effective in treating a range of cancers driven by mutations of genes in the RAS family.
As a result, daraxonrasib could be a very valuable drug, likely explaining at least some of Merck’s interest in acquiring Revolution. RAS is the most common gene that, when mutated, causes cancers in human beings. Mutations of RAS genes are found in roughly 20 percent of cancer cases, making them drivers of over 3 million cancer cases globally each year.
Unsurprisingly, this fact places RAS inhibitors as a fast-growing category of potential cancer treatments. From 2025 through 2034, the market for RAS-targeting drugs is expected to grow at a CAGR of nearly 12 percent, with the valuable North American market making up the largest geographic segment during that forecast period.
Daraxonrasib isn’t, however, the only promising drug in Revolution’s pipeline. Three other drugs are currently in early stages of research, with emphasis being placed on solid tumor treatment. This cluster of drugs could also be quite appealing to a major pharmaceutical business like Merck that is looking to expand its portfolio.
Value Risks of Betting on a Buyout
Although there’s a fair bit to like about Revolution Medicines, it’s also important to take into account the risks of investing in a stock that is currently priced with a buyout in mind. After its recent surge, Revolution commands a market cap of almost $23 billion, despite trailing 12-month losses that have grown to $961 million and a lack of current revenue.
Soaring share prices have also carried RVMD beyond what even a fairly bullish set of analyst forecasts predicts for it. Revolution has a unanimous buy rating and a consensus price target of $88.94. With shares currently sitting at $118.64, though, this consensus price target implies a downside of over 25 percent. While the range of prices reportedly being discussed by Revolution and Merck would leave substantial upside left in the stock, shares could slide back to well below their current level if a buyout offer doesn’t materialize.
Even so, it’s worth acknowledging that a more bullish case does exist. The uppermost end of the analyst forecast range is at $147, implying about 24 percent more upside from RVMD. Although the buyout price discussed by Merck would be higher still, this likely represents the most bullish case for the stock if Revolution kept operating independently without being purchased by another entity.
So, Is RVMD a Buy?
Another one of the problems that Revolution Medicines will likely run into if Merck or another pharma major doesn’t acquire it is an increasingly crowded market for oncology drugs targeting RAS. Due to the potential of RAS inhibitors for treating a wide range of different cancers, Revolution isn’t the only business working on these drugs. Other players in this space include the likes of Amgen (NASDAQ:AMGN) and Novartis (NYSE:NVS), both vastly larger businesses with far more resources than a startup like Revolution.
The upside potential if RVMD is bought out, however, could be quite high. The mid-range buyout price reported from Merck of $30 billion, for instance, would represent a premium of about 31 percent from the present market cap of $22.9 billion. While this price hasn’t been confirmed by either business, it likely represents the standard against which other potential buyers would have to compete if they wished to bid against Merck for Revolution.
Ultimately, RVMD looks like a high-risk, high-return proposition that highly risk-tolerant investors may find appealing on the basis of a potential buyout. Even if Merck doesn’t decide to go through with an acquisition, there’s a decent chance that other pharmaceutical businesses are eyeing Revolution Medicines. Such an acquisition, however, is far from a sure thing, and the stock could see significant downward volatility if it isn’t bought out.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.