Novartis ( NVS - Get Report) announced Friday late-stage results from a clinical study that showed its experimental daily pill for multiple sclerosis was more effective than a currently approved injectable drug sold by Biogen Idec ( BIIB - Get Report).

The Swiss-based drug maker said it intends to seek regulatory approval for the drug, FTY720, in the U.S. and Europe by the end of 2009. If approved, FTY720 would offer patients with relapsing-remitting multiple sclerosis, the most common form of the disease, the convenience of an oral treatment for the first time.

However, serious safety concerns have dogged FTY720, including reports of fatal infections and increased risks for heart and liver problems. While all existing multiple sclerosis drugs carry side-effect risks, FTY720's safety profile is likely to be scrutinized very closely by regulators.

The global market for MS drugs is expected to reach $5.8 billion in 2008, according to a recent report from JPMorgan.

Biogen Idec's Avonex is the market leader with 2007 sales $1.9 billion, followed closely by Sanofi-Aventis' ( SNY - Get Report) Copaxone, Merck Serono's Rebif and Betaseron from Bayer. The most recently approved MS drug was Tysabri, marketed by Biogen Idec and Elan ( ELN).

All these drugs are administered by injections, which leaves them commercially vulnerable to an oral MS drug, if one can be approved that is equally or more effective with an acceptable safety profile.

The "Transforms" study reported by Novartis Friday was the first head-to-head comparison of FTY720, taken as a daily pill, against Biogen Idec's leading multiple sclerosis drug Avonex, which is administered via a weekly injection.

The results showed that MS patients treated with FTY720 experienced significantly fewer disease relapses than patients taking Avonex. The annualized relapse rate after one year of treatment with FTY720 was reduced by 52% at the low dose and 38% at the high dose compared with Avonex patients, according to Novartis. The results from both doses of FTY720 compared with Avonex were statistically significant.

"We are encouraged by the early results from Transforms, which represent a major step towards delivering an effective oral treatment for people with relapsing-remitting MS," said Trevor Mundel, Novartis' global head of development, in a statement. "These positive results reinforce the potential for FTY720 to provide a significant advance in the future treatment of this devastating disease."

Last June, Novartis disclosed that two patients taking FTY720 in the study suffered fatal herpes infections. At that time, Novartis said there were confounding medical factors that contributed to the deaths, although FTY720 could not be ruled out as a cause because the drug works by suppressing a patient's immune system. An independent safety monitoring board allowed the FTY720 study to continue.

Novartis said Friday that adverse safety events related to FTY720 reported in the Transforms study included lowered heart rate, increases in blood pressure and elevations of liver enzymes, a potential signal of liver damage. Seven cases of localized skin cancer were diagnosed in FTY720-treated patients compared with one case reported in Avonex patients. All the cancers were successfully removed with surgery.

Overall, Novartis said that 87% of FTY720 patients completed the one-year study. The discontinuation rate for FTY720 was 10% for the low-dose patients and 15% for the high-dose patients compared with 12% for Avonex patients.

Novartis is conducting two additional phase III studies of FTY720 in MS patients, both comparing the drug to placebo after two years of treatment. Data from these studies, which will be required for the drug's approval, are expected to be released in 2009.

Novartis shares closed Thursday at $45.87. Biogen Idec shares closed at $47.15.

At the time of publication, Feuerstein's Biotech Select model portfolio had no positions in any stocks mentioned.

Adam Feuerstein writes regularly for TheStreet.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.