What happened

Puma Biotechnology (NASDAQ:PBYI) rose 11.7% in June, according to data provided by S&P Global Market Intelligence, after the European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) reversed its previous negative decision and recommended approving the biotech's breast cancer drug Nerlynx.

So what

Nerlynx is already approved in the U.S., but European regulators tend to be more safety conscious than their U.S. brethren. Cancer drugs can usually get away with some nasty side effects -- think hair loss or even worse -- given the lethality of the disease, but Nerlynx is taken as adjuvant treatment, meaning it's used after other treatments to keep the cancer from recurring.

Given the modest efficacy benefit in patients who aren't currently sick and the fact that the drug is taken for a year, CHMP seemed to be worried about the benefits justifying the side effects, which include gastrointestinal issues. Fortunately for shareholders, Puma Biotechnology was able to convince regulators during a reexamination that the benefits justified the risk.

A female technician looking at a mammogram on a computer screen

Image source: Getty Images.

Now what

Nerlynx still isn't approved in the EU; the European Commission needs to sign off on CHMP's recommendation. But that final step is simply a rubber stamp. CMHP is essentially akin to the Food and Drug Administration rather than being like the FDA's advisory committees, where the FDA can ignore the recommendation of its outside experts.

Puma Biotechnology certainly deserves a higher valuation on its reversal of fortune. The question now is whether it can convince doctors in the U.S. and EU to prescribe the drug given the modest benefit. Puma will also have to convince payers in Europe to cover the drug, something they're not required to do even after the drug is approved.