What happened

Shares of Lexicon Pharmaceuticals (NASDAQ:LXRX) rose over 26% today after the company reported that Europe's Committee for Medicinal Products for Human Use (CHMP) voted to recommend Zynquista in patients with type 1 diabetes. The news comes less than two months after an advisory committee to the U.S. Food and Drug Administration reached an impasse on recommending the drug in the same patient population, with eight members in favor and eight members against. 

While the European Medicines Agency (EMA) doesn't have to follow the CHMP recommendation, Wall Street is taking it as a sign that Zynquista has a future after all. It should earn marketing approval in the European Union in the next several months. Does that hint at a positive outcome ahead of the FDA decision on March 22?

As of 11:42 a.m. EST, the stock was still setting new daily highs, settling at a 26.5% gain.

Click here for the latest earnings call transcript for Lexicon Pharmaceuticals.

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So what

It's important to note that the news today doesn't mean Zynquista is approved for use in Europe. New drug applications are reviewed by advisory committees comprising experts in specific fields of medicine who pore over all data collected to date and vote on whether a drug candidate's benefits outweigh its risks. The final marketing approval decision is then made by regulators -- EMA in Europe and the FDA in the United States -- that take the committee's recommendation into consideration.

The fact that the FDA advisory committee failed to reach a consensus has made Zynquista's future more uncertain. Will the FDA recommend the drug anyway? Or will regulators request additional data be collected from new clinical trials? Lexicon Pharmaceuticals will find out on March 22.

Now what

The positive recommendation from CHMP means investors can relax a little. Zynquista is likely to be approved in Europe, which helps to partially de-risk the drug's future. Of course, earning marketing approval in the major U.S. market is necessary for the drug to live up to its blockbuster potential. The uncertainty makes Lexicon Pharmaceuticals a risky stock right now, although certainty will be provided, for better or for worse, later this month.

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