Updated from 1:05 PM

Biogen

(BGEN)

is selling off Wednesday on news that the biopharmaceutical firm faces a stiff challenge to its stranglehold on the U.S. market for multiple sclerosis drugs.

Swiss biotech company

Serono SA

(SRA)

said Wednesday that it will release data May 8 from a highly anticipated study, comparing its MS drug, Rebif, to Biogen's drug, Avonex, its main money-maker.

Data from the head-to-head trial weren't expected until the third quarter, which leads observers to believe that Serono just can't wait to release good news for its drug. Serono must prove that Rebif is more effective than Avonex to crack the U.S. market earlier than 2003. Avonex currently enjoys "orphan status" here, which blocks competition until then.

Shares in Biogen are off $4.36, or almost 7%, to $59.74 in recent trading Wednesday on fears that its U.S. Avonex monopoly is in trouble. Shares in Serono were up in recent trading $1.30, or 6%, to $22.18.

Biogen posted

better-than-expected first-quarter profits because of surging Avonex sales, which are projected to reach $900 million in 2001. Biogen is vulnerable because it relies almost solely on Avonex for the bulk of its revenue. The company is not expected to push another drug onto the market until late next year.

But Biogen bulls are rushing to its defense, insisting that Serono's study may not pass muster with the

U.S. Food and Drug Administration

.

"Even if Serono reports positive results for Rebif vs. Avonex, I still don't think the FDA is going to accept the study because it was poorly designed," says Eric Shen, biotech analyst with

Robertson Stephens

, who rates Biogen a buy. Shen's firm doesn't do banking for Biogen.

For starters, Shen says, Serono conducted a six-month study, a time period that is usually frowned upon by FDA regulators for being too short. And Serono conducted what is known as an "open label" study, which means doctors and patients knew which drug they were taking. Typically, the FDA prefers "blind" studies where the drug being administered is not revealed until after the study is finished.

And doctors, accustomed to using Avonex for many forms of MS, may stick with it, especially because it's easier to administer than Rebif, says Shen. Patients are injected with Avonex once a week, while three injections per week are required for Rebif.

"I still don't think Serono gets Rebif into the U.S. market until 2003," says Peter Ginsberg, biotech analyst at

U.S. Bancorp Piper Jaffray

, who rates Biogen a buy. "But if everything does go Serono's way, Rebif will take market share away from Avonex." Ginsberg's firm doesn't do banking for Biogen.

Serono is hoping to get the maximum bang for its buck by released the Rebif-vs.-Avonex study May 8 in front of thousands of neurologists attending the annual meeting of the

American Academy of Neurology

. But Biogen will also be presenting studies of its own at the meeting, trying to expand Avonex's use into other, more debilitating forms of MS.

The FDA will be ultimate arbiter in this drug war, but on Wednesday, investors were the jury, and they were giving Biogen the thumbs-down.