What happened

Xenon Pharmaceuticals (XENE 1.08%), 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.

A person interacting with a hologram of a rocket taking off from a laptop.

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