Receptos (UNKNOWN:RCPT.DL) shares surged by a 36% this morning following news that the company's RPC1063 met its primary endpoint as a treatment for relapsing multiple sclerosis.

The midstage trial results offer investors hope that Receptos' product will eventually make its way to market and challenge market share leaders Biogen Idec (NASDAQ:BIIB). and Teva Pharmaceutical (NYSE:TEVA)

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First, a bit of background
In multiple sclerosis, the protective shield surrounding nerves is damaged by the body's immune system. That damage results in a miscommunication in the body's central nervous system, leading to slate of potentially debilitating symptoms including muscle weakness, loss of balance, and tremors. 

It's estimated that more than 2 million people globally suffer from multiple sclerosis, including 1.1 million in the U.S. and Europe.

Since there isn't a cure for multiple sclerosis, treatment is focused on reducing the number of annual relapses in an effort to delay disease progression and nerve damage. Those treatments include a range of injectable drugs and a new class of oral pharmaceuticals that combined produce billions of dollars in annual sales.

Teva's Copaxone is one of the most widely prescribed of these treatments. In 2012, Copaxone's market share of MS scripts stood at 40%; however, the introduction of new treatments reduced the drug's market share to roughly 35% last year, and estimates suggest Copaxone's share will drop to 25% in 2014. Nonetheless, the drug still generated more than $1 billion in sales for Teva in the first quarter.

Biogen has been a dominant player in MS for years thanks to its injectable drugs Avonex and Tysabri, which combined to produce $1.2 billion in sales during the first quarter.

Meanwhile, Biogen's rising star Tecfidera won FDA approval in March 2013 and has already become the most widely used oral MS treatment in America, displacing Novartis' oral MS drug Gilenya, which had sales of $1.9 billion in 2013.

Sales of Tecfidera reached $500 million in the first quarter. That $2 billion annualized run rate is likely to head even higher this year as Tecfidera is now launching abroad. Biogen's drug is a big reason for Copaxone's market share decline.

Advancing a new therapy
The sheer size of the MS patient population and multiple blockbuster drugs have caught the attention of biotech companies such as Receptos that are eager to tap into this lucrative market.

Receptos' MS drug RPC1063 targets the S1P1R pathway, altering the migration pattern of S1P1R-expressed white blood cells so that they avoid areas of inflammation. Given that previous research suggests that S1P1R overexpression is found in both nonactive and active MS, RPC1063's ability to control S1P1R activity may succeed in reducing the number of MS relapses annually.

The company's phase 2 study wasn't designed to measure annualized relapse rates (that will be studied in phase 3), but rather to determine whether RPC1063 reduced the total number of MS lesions between the 12th and 24th week of treatment. The drug succeeded in reducing the number of lesions by 86%. The safety profile indicated that RPC1063 seemed to have a similar adverse event profile to placebo. 

If that holds up in late-stage studies, RPC1063 could have an advantage over competing drugs, many of which come with cardiovascular risk or danger to the liver.

Fool-worthy final thoughts
Receptos' phase 2 trial only involved 258 patients; the phase 3 trial, which kicked off in December, plans to enroll 1,300 patients. Whether the drug succeeds in reducing annual relapses and its safety profile holds up in the far larger patient population remains to be seen. Plenty of drugs perform well in midstage trials, yet fail in phase 3.

However, since the phase 3 trial pits RPC1063 head-to-head against Biogen's Avonex, a win could create a blockbuster. Fools should remember that RPC1063 is Receptos' lead drug, making it a speculative investment best suited only for aggressive investors.