What happened

Shares of Clovis Oncology (NASDAQ:CLVS) gained over 25% today after the company announced that the U.S. Food and Drug Administration (FDA) had granted priority review to Rubraca for advanced prostate cancer. The designation means that regulators will review the supplemental new drug application (sNDA) in six months or less, compared to the standard 10-month review period. 

Even before today's announcement, investors never had much doubt that Rubraca would be approved to treat metastatic castration-resistant prostate cancer (mCRPC). The drug also earned Breakthrough Therapy designation from the FDA for that indication, which is usually followed by a priority review designation and often allows applications for marketing approval to be submitted based on phase 2 trial data. 

However, investors might be overreacting a bit to today's news. As of 11:34 a.m. EST, the pharma stock had settled to a 13.4% gain.

A man holding a large arrow cut out pointing up.

Image source: Getty Images.

So what

On the one hand, investors always seem to be disappointed with Rubraca's quarterly revenue figures, so earning approval in mCRPC would help to inject growth into the franchise. On the other hand, today's news might mean relatively little in the grand scheme of things.

Rubraca inhibits poly ADP ribose polymerase (PARP), an enzyme that becomes more active when certain DNA repair mechanisms break down. While PARP inhibitors have promising potential to treat certain genetically defined cancers, the consensus on Wall Street is that Rubraca lags behind two peers. 

Analysts are most optimistic about the market potential of Lynparza from AstraZeneca (NYSE:AZN) and Merck (NYSE:MRK), while Zejula from GlaxoSmithKline (NYSE:GSK) is a distant second. Rubraca is the only drug in the trio not expected to eclipse $1 billion in peak annual sales across all indications. 

Additionally, all three drugs have earned Breakthrough Therapy designation in mCRPC. While Rubraca's priority review could allow it to reach market before other drugs in its class, Lynparza won't be far behind (and it could still earn priority review in mCRPC), and it's the only PARP inhibitor that has completed a phase 3 trial in the indication. Doctors might be more inclined to prescribe Lynparza based on its more robust data set. 

Now what

Investors appear to be interpreting today's news that Rubraca has earned priority review in mCRPC as a sign that it will edge out Lynparza and gain a first-mover advantage in the indication. That might not be the correct read of the competitive landscape.

Now, if Clovis Oncology proves that Rubraca is the best PARP inhibitor for treating mCRPC, then the drug could assume the top market position in the indication. However, the company won't be able to make that claim until an ongoing phase 3 trial is completed, in the next year or two.