Why Xenon Pharmaceuticals Stock Is Screaming Higher Today

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What happened

Xenon Pharmaceuticals (NASDAQ:XENE), a clinical-stage biotech, is having a superb showing in pre-market trading Monday morning. The biotech’s shares, in fact, jumped by as much as 98%, on extremely heavy volume, before 8 a.m. today.  

What’s driving this enormous rally in the tiny biotech’s stock today? Ahead of the opening bell, Xenon announced positive mid-stage trial results for XEN1101 as a potential treatment for adult patients with focal epilepsy.

XEN1101 is anticipated to be an integral part of this next generation of anti-epileptic drugs currently making their way to market. What’s important to understand is that this next batch of epilepsy drugs is expected to grow the overall market by high single-digits per year due to their improved efficacy and fewer side effects.

Image source: Getty Images.

So what

While estimates vary, Xenon’s experimental epilepsy drug is expected to compete in a market worth close to $7 billion at present. What’s more, this particular drug market is on track to grow at a compound annual growth rate of approximately 6.6%, according to Coherent Market Insights.

Now, the bad news. Xenon’s drug will face stiff competition in this crowded space. As a result, XEN1101’s peak sales might top off in the hundreds of millions — that is, unless a bigger pharma takes over its commercial launch through either a licensing deal or a buyout. 

Now what

Is Xenon’s stock still a buy? Although the chances of XEN1101 successfully navigating its clinical program just got a whole lot better, it’s generally a bad idea to chase any stock that doubles in a single day. So, in short, it might be best to wait for a more attractive entry point if you are going to buy shares of this biotech

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.