Eyetech Pharmaceuticals'

( EYET) market cap disintegrated Tuesday, a day after a competitor said a key clinical trial of an experimental eye-disease drug showed promising results.

Eyetech already has a drug, Macugen, on the market for treating wet age-related macular degeneration, or wet AMD, a disease that slowly steals sight from people over 50.

But preliminary results of a late-stage clinical trial announced Monday afternoon by

Genentech

( DNA) rattled shares of Eyetech. These results suggested that Genentech's drug, Lucentis, could improve vision in some patients.

When the Food and Drug Administration approved Macugen in December, it noted that clinical tests show Macugen patients exhibited a "significant decrease in vision loss."

Several Wall Street analysts on Tuesday cut their ratings as they forecast bad news for Eyetech, whose drug was launched in January with the help of marketing partner

Pfizer

(PFE) - Get Report

.

AMD Coverage

"Eyetech faces a serious threat to its long-term viability unless Macugen can sustain profitability for the company," says Steven Harr, of Morgan Stanley, in a Tuesday research note. Harr cut his rating to equal weight from overweight. He doesn't own shares, and his firm has an investment banking relationship.

The Genentech announcement prompted Dr. David R. Guyer, chief executive of Eyetech, to remind analysts that Macugen has several advantages -- the product is already on the market; it has data showing two years' worth of safety and effectiveness; and it covers all forms of wet AMD. The Genentech clinical trial reported preliminary results of 12-month data covering two of three major categories of wet AMD.

"The news from Genentech is not complete," said Guyer, speaking at a health care investors' conference in New York sponsored by UBS. He said regulators and investors should wait until Genentech presents more detailed results from the study that was unveiled Monday, as well as from two other late-stage clinical trials.

Guyer added that it's "inappropriate" to compare data from two different trials of two different drugs. He noted that the tests of Genentech's drug and tests of Eyetech's drug examined different patient populations.

But that didn't stop the flurry of selling Tuesday. Eyetech's stock dropped $10.44, or 44%, to $13.42, hitting a 52-week low. In the first 90 minutes of trading, about 21.4 million shares were traded. The average daily volume is just over 1.1 million shares. By midday, more than 28.8 million shares had been traded.

Genentech's shares were up $2.62, or 3.4%, to $79.22 on higher-than-average trading.

More Data Near

The key headline for the Genentech test is the company's assertion that Lucentis can improve vision in some wet AMD patients.

"These Lucentis data exceeded our expectations because they show, for the first time in a phase III trial, a statistically significant improvement in vision for patients in a disease that has remained chronic and progressive despite current treatment options," Genentech said on Monday. Phase III tests are the final clinical trials before a company submits a drug application to health regulators.

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Genentech said results involving 716 people show that about 95% of those taking Lucentis "maintained or improved vision" after 12 months of treatment vs. around 62% given a placebo. More details will be presented at a medical conference in Montreal in July. Genentech's marketing partner is

Novartis

(NVS) - Get Report

.

If additional results show Lucentis can improve vision, Genentech would have a significant advantage over Macugen and other treatments for wet AMD, which causes people to lose their central vision. If wet AMD attacks both eyes, it can lead to legal blindness.

Genentech's drug applies a technology to inhibit a protein that is believed to play a role in the development of new blood vessels in the eye. As these runaway vessels proliferate, they leak blood or fluid, putting pressure on a part of the eye called the macula, which governs fine, detailed vision. When the macula bulges, vision becomes distorted.

Both Lucentis and Macugen inhibit the growth of unwanted blood vessels by impairing the activity of a protein called vascular endothelial growth factor, or VEGF. Lucentis must be injected into the eye every four weeks. Macugen is injected into the eye every six weeks.

Wall Street Reacts

"Lucentis gives Macugen a black eye," says a Tuesday research report from Andrew McDonald, of ThinkEquity Partners, as he cuts his rating from source-of-funds to sell. "We do not believe Macugen will occupy a significant share of the wet AMD market once Lucentis penetrates the market." McDonald predicts Genentech's drug could reach the U.S. market in late 2006. He doesn't own shares, but his firm is a market maker.

Eric Ende of Merrill Lynch reduced his rating to neutral from buy, even though he conceded that there are "key unknowns" in the Genentech trial. These unknowns include safety and efficacy data for two years, efficacy of the different dosing schedule and the percentage of patients whose vision actually improved after taking Lucentis.

"If the data holds up, future Macugen sales could be hurt, and the odds of that have risen dramatically," he says in a Tuesday report to clients. He doesn't own shares; his firm has an investment banking relationship and is a market maker in Eyetech's stock.

Another company that treats macular degeneration,

QLT

(QLTI)

, saw its stock fall Tuesday by $1.61, or 13.6%, to $10.19 on very heavy trading. The stock dropped as low as $9.84, a 52-week low.

QLT has teamed up with Novartis to make a different type of drug. Although Macugen and Lucentis must be injected directly into the eye, QLT's drug, Visudyne, is injected intravenously. Visudyne chemically sensitizes the eye, which is then exposed to infrared light.

This treatment, called photodynamic therapy, stops blood vessels from leaking, but it doesn't restore sight and it doesn't stop new blood vessels from developing. Visudyne works on only one type of wet AMD. According to QLT, the average patient undergoes 2.7 treatments per year over the course of two years.

Although two analysts cut their ratings on QLT, Sapna Srivastava of Morgan Stanley retained her overweight rating on Tuesday, saying that the Genentech test results would have "minimal" impact on QLT.

Her thesis is that Visudyne's sales could be aided if research shows that QLT's drug would work as a combination therapy with Lucentis and/or Macugen. She doesn't own shares; her firm has an investment banking relationship with QLT.

"Although the Lucentis data exceed expectations, it is still not a cure, leaving ample room for improvement by combination therapy with Visudyne," she says in a research report. However, if Lucentis is "sufficient" as a single therapy, she says she would have to re-evaluate her prediction.