(Adds comments from Alzheimer's Association official in paragraphs 17-18, 21. Updates share prices.)

By Jon Kamp

Of DOW JONES NEWSWIRES

Wyeth (WYE) and Elan Corp. (ELN) shares plunged Wednesday as a midstage study on their experimental Alzheimer's disease drug appeared to present more questions than answers, with concerns centered around a potential safety complication and patients' response to different dosages.

The findings of the 240-patient study, which were released at the International Conference on Alzheimer's Disease on Tuesday, led Wall Street to start discounting the potential of the drug, called bapineuzumab.

Both stocks had seen gains in recent weeks on hopes of more positive data backing a new weapon against a major disease with few treatment options. But questions regarding bapineuzumab are likely to linger until the arrival of more data, which isn't expected until 2010.

The latest data showed "efficacy trends that were weak, and potentially worrisome safety findings that seemed marginally worse than we expected," said Bernstein Research analyst Tim Anderson, who has an outperform rating on Wyeth but lowered his target price for shares by $7 to $46.

Other analysts also lowered their target prices, while Citigroup's John Boris downgraded Wyeth to sell from hold.

Not all analysts felt the safety issue - a dozen cases of a fluid buildup in the brain among bapineuzumab users - was a concern, and some saw positive signals mixed in the study as well.

Still, shares of Wyeth dropped 11.8% to $39.76 Wednesday and hit $38.30 earlier, marking the lowest intraday point since late 2004. Shares of Elan, based in Dublin, plunged 40% to $20.25.

The sell-offs highlighted investor uncertainty regarding bapineuzumab's potential, following a period in which the value of both companies improved behind mounting expectations for the drug. Those expectations were fueled by partial data released June 17 that suggested benefits for a subgroup of Alzheimer's patients. However, the slide in Wyeth and Elan shares on Wednesday more than wiped out gains posted following the partial-data release.

A successful Alzheimer's drug could be a blockbuster, given the brain-harming disease affects more than 5 million Americans and the tally is likely to surge as baby boomers age. Also, there are no approved drugs today that alter the progression of the disease, kicking the door wide open for a better treatment.

Shares of Baxter International Inc. (BAX), which is studying an existing company drug against Alzheimer's, recently traded up 1.4% to $68.22.

Wyeth and Elan said Tuesday full results from their midstage study on bapineuzumab supported their earlier decision to launch a bigger, late-stage trial on the drug, despite some questions surrounding that move.

As reported in June, bapineuzumab did not significantly improve cognitive and functional ability versus a fake drug, or placebo. But it did show encouraging signs of effectiveness among the subset of patients who lack a gene that increases the risk of developing Alzheimer's.

The population of disease sufferers lacking this gene, which is known as apolipoprotein E4, or ApoE4, could still number in the millions.

Citigroup's Boris noted, though, that this positive signal was based on a " post-hoc analysis" that "makes the validity of these findings questionable, in our opinion."

UBS analyst Roopesh Patel, who has a neutral rating on Wyeth, said the efficacy data, including data for patients who don't carry the gene, were " underwhelming."

The big item expected in Tuesday's data release was "very impressive efficacy" among patients who don't carry the ApoE4 gene, Patel said. But he and other analysts voiced concern with a lack of a "clear dose response." According to the data, none of the patients - whether or not they had a genetic bias toward the disease - saw any more benefit from a higher dose of bapineuzumab than a lower dose.

Maria Carrillo, director of medical and scientific relations with the Alzheimer's Association's national office, called the sub-analysis results suggesting that bapineuzumab helped patients without the ApoE4 gene interesting, but said results from the bigger study are needed to really assess effectiveness. The companies were correct to launch that study, she said.

"What we clearly need is to continue to study this compound," said Carrillo, who is not affiliated with the companies. "We do not have time to waste."

On the safety front, Wyeth and Elan said there were 12 cases of vasogenic edema, or fluid buildup on the brain, among patients treated with bapineuzumab versus no cases in patients given a placebo. All the cases were resolved over time, eight cases occurred in patients getting the highest dose of bapineuzumab, and 10 cases were seen among ApoE4 carriers.

Credit Suisse analyst Catherine Arnold, who has an outperform rating on Wyeth, said the "main safety concern appears manageable at this point" because cases of vasogenic edema seemed dose-dependent, while UBS' Patel said the safety issue was not a concern. Other analysts, though, saw red flags.

According to Carrillo, the vasogenic edema issue is a concern "that needs to be minimized." But she also stressed that the point of a midstage study is to assess safety and tolerability of new drugs, and that the companies are correctly making dosage adjustments in the bigger study to guard against this side effect. Also, when diseases themselves cause death, "we tolerate a pretty high level of risk," she said.

There were also three deaths among users of bapineuzumab in the midstage study, although researchers didn't consider them related to the treatment.

Investors will have a long wait for more clarity, which is likely to come in the expansive late-stage study the companies have already launched.

"While bapineuzumab ultimately may be a viable commercial opportunity, we will have limited data and visibility into the drug over the next two years," JPMorgan analyst Chris Schott said.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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  07-30-08 1429ET
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