Shares of Xenon Pharmaceuticals (XENE -2.64%), a biopharmaceutical company developing neurology drugs, shot up on Monday. Better-than-expected trial results for a potential new epilepsy treatment that has blockbuster potential written all over it did the trick. 

Buying stocks just because they're going up isn't a great strategy, but you're right to wonder if this one can climb higher. Before diving in, let's see why everyone's talking about this small-cap biotech right now.

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Epilepsy specialist

Xenon Pharmaceuticals' recent stock market performance was driven by clinical trial success for XEN1101. This is an in-house version of XEN496, a Kv7 potassium channel modulator that Xenon Pharmaceuticals licensed from GlaxoSmithKline (GSK -0.41%) in 2018.

GlaxoSmithKline used to market XEN496 as Potiga, but a side effect led the big pharma to pull it from the market. Potiga never had a chance at achieving significant sales as a treatment for the large population of relatively healthy epilepsy patients who experience focal seizures. It had a troubling tendency to change eye color, a condition that led to vision loss for some unfortunate patients.

As a treatment for a more severe form of epilepsy, though, the benefits could far outweigh the risks. Xenon Pharmaceuticals is running a phase 3 trial with GlaxoSmithKline's castoff for the treatment of a small, genetically defined group of epilepsy patients who are likely to respond to Kv7 modulation.

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Why Xenon Pharmaceuticals stock shot higher

This biotech stock also popped recently because it looks like it doesn't even need XEN496. That's important because Xenon Pharmaceuticals had more-than-enough time to share positive data from an ongoing phase 3 study with its most advanced-stage new-drug candidate.

Treatment with XEN1101 safely reduced monthly seizure frequency for patients with focal epilepsy in a phase 2 trial. The median reduction among patients who received the largest dose tested was 52.8%, compared to 18.2% in the placebo group.

This wasn't an easy crowd to please, either. A majority of the volunteers couldn't control their seizure frequency with six or more previous anti-seizure medications. During the study, most of these patients were also taking at least one anti-seizure medication. 

Investors are particularly encouraged by the complete lack of pigmentary abnormalities reported during the study. This is the vision-related side effect that effectively ended Potiga's run as a treatment for the larger population of focal epilepsy patients. Overall, 2.6% of patients who received the high dose of XEN1101 reported a serious side effect, which was the same as the placebo group. 

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A good biotech stock to buy now

With a safety profile clearly differentiated from Potiga, XEN1101 could experience a great deal of demand right out of the gate. About 60% of people with epilepsy experience focal seizures.

Despite running up on Monday morning, shares of Xenon Pharmaceuticals appear relatively inexpensive. Biotech stocks tend to trade at mid-single-digit multiples of annual sales.

The company doesn't have any products to sell yet, but XEN1101 could generate more than $1 billion in annual sales several years from now. With a recent market cap of around $1.2 billion, this biotech stock probably has a lot of room to run.