Updated from 7:34 a.m. EDT

The cancer drug Erbitux has prolonged the survival of lung-cancer patients, according to results of a large phase III study announced today by German drug maker Merck KGaA, which sells the drug in Europe.

The news sent shares of ImClone Systems ( IMCL) surging Tuesday morning. ImClone, of course, developed Erbitux and markets the drug in the U.S. with partner Bristol-Myers Squibb ( BMY).

Erbitux is used primarily to treat colon cancer and head-and-neck cancer. Until today, the large and lucrative lung cancer treatment market has been out of the drug's reach. If Erbitux becomes a player in the lung cancer market, it could pinch sales of Genentech's ( DNA) Avastin, which is currently the go-to targeted cancer drug for first-line lung cancer treatment.

ImClone shares recently were up $8.27, or 22%, to $46.20. Genentech shares were off $1.40, or 1.8%, at $77.75.

German Merck's so-called "Flex" study of Erbitux plus chemotherapy increased overall survival vs. chemotherapy alone in patients with advanced non-small-cell lung cancer. These patients had not previously received any chemotherapy treatment. No more details from the study were provided.

These positive results are somewhat surprising because a similar Erbitux first-line lung cancer study run by Bristol-Myers Squibb came up negative in July. That study, known as BMS CA225, combined Erbitux with a different chemotherapy regimen than the one used in this Flex study.

The Flex study combined Erbitux with vinorelbine and cisplatin, a commonly used chemotherapy combination used by European doctors. The earlier Bristol-Myers study combined Erbitux with paclitaxel and carboplatin, more commonly used in the U.S.

Erbitux is now the first drug in the EGFR inhibitor class of targeted cancer drugs to produce a survival benefit in first-line non-small-cell lung cancer. The details of the study -- most importantly, the magnitude of the survival benefit -- need to be known, but if the results hold up and are clinically significant, Erbitux could become a player in the lung cancer market.

That could spell some trouble for Genentech's Avastin. The addition of Avastin to chemotherapy boosted overall survival of non-small-cell lung cancer patients to 12.5 months compared to 10.2 months for patients taking chemo alone, according to a large phase III study conducted in 2005.

Another potential advantage for Erbitux is that the Flex study enrolled patients with all subtypes of non-small-cell lung cancer. This compares to Avastin, which cannot be used in certain subtypes of the cancer due to safety concerns.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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