New clinical trial results show that a leukemia drug offers a promising prospect for treating multiple sclerosis, but the drug's side effects prompted its sponsors to suspend dosing in the clinical trial while they discuss the next step with the Food and Drug Administration.

The drug is called Campath, and it is now approved in the U.S. for treating B-cell chronic lymphocytic leukemia. Campath is being developed for multiple uses by

Genzyme

(GENZ)

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and Germany's

Schering AG

(SHR)

.

The companies said they will "work closely" with regulators and clinical investigators "to ensure that a comprehensive approach is in place to manage patient safety."

Friday's announcement offers a complicated good news/bad news scenario for the treatment of multiple sclerosis.

MS patients suffered a big setback in February when Tysabri was pulled from the market by

Elan

(ELN)

and

Biogen Idec

(BIIB) - Get Report

, because clinical trials revealed that several patients contracted a rare, often fatal brain disease.

The results also present a hurdle for Genzyme, which inherited Campath when it bought

Ilex Oncology

last year. Ilex had the U.S. rights to the drug from Schering. Genzyme, based in Cambridge, Mass., bought Ilex

to add cancer drugs to its lineup of medications for rare diseases.

The companies' announcement didn't hurt their shares, as Genzyme's stock was up 66 cents to $72.32, and Schering was rising 27 cents to $62.51. But they face uncertainty in pursuing Campath as an MS drug that would garner FDA approval.

"While the drug had surprisingly strong efficacy data, the safety profile leaves question marks," says M. Ian Somaiya, of Thomas Weisel Partners, in a research note. He doesn't own shares, but his firm says it expects to receive or seek investment-banking compensation from the company in the next three months.

The companies preferred to focus on the positive news. "Based on these results, we will be moving this program forward with a tremendous sense of urgency," said Henri A. Termeer, chairman and CEO of Genzyme.

The latest test results come from a phase II (midstage) clinical trial. In order to secure FDA approval, the companies must conduct a bigger, more extensive phase III trial, and they must design a study that takes into account the safety issues that have been identified.

The red flag was the comparison of "serious adverse events" between MS drug Rebif, which had two, and Campath, which had nine. Rebif is made by Switzerland's

Serono

(SRA)

and is co-marketed in the U.S. by

Pfizer

(PFE) - Get Report

. The test covered 334 patients with active relapsing-remitting MS who were evaluated in 49 medical centers.

Among the Campath patients, three suffered from a disease, nicknamed ITP, that can cause abnormal bleeding due to low blood-platelet counts. Two of these patients received high doses of Campath, and one received a low dose. One patient died.

"Investors could have flashbacks to the fatal Tysabri side effect," says Thomas Shrader of Harris Nesbitt, in a note to clients. "But we see the situation with Campath as fundamentally different in that ITP is not a fatal condition if proper monitoring is in place. Importantly, Genzyme believes that the ITP side effect can be properly managed by physicians."

Shrader, who is neutral on the stock, doesn't own shares of Genzyme.

The companies said most patients had received a second year's worth of doses in a planned three-year study. The companies said they would evaluate "the necessity and timing of the third planned dose," adding that they are talking to the FDA "about what additional steps might be needed to protect patient safety."

The companies said they will continue to collect efficacy and safety date from the trial while they plan for a phase III trial.

The encouraging news from the phase II interim results shows that Campath patients had significantly fewer relapses of MS "after at least one year of follow-up" vs. Rebif patients. Schering and Genzyme said the comparison was statistically significant for both high doses and low doses of Campath, whose patients experienced at least a 75% reduction in relapse risk vs. Rebif patients.

However, the companies said there was no difference in effectiveness between the high dose and the low dose, so they will no longer test the high dose. In addition, Campath patients failed to achieve a statistically significant improvement vs. Rebif patients in another indicator of efficacy called "risk for progression of clinically significant disability."