(Recasts, adds researcher quotes)

By Ransdell Pierson

NEW YORK, May 1 (Reuters) - Genentech Inc. <DNA.N> and Biogen Idec Inc. <BIIB.O> said on Tuesday their Rituxan cancer drug proved highly effective against multiple sclerosis in a small mid-stage trial, signaling a potentially more effective way of treating the progressive neurological disease.

"This was just a small Phase II trial, but the data suggest that Rituxan has a treatment effect that is stronger than first-line current treatments," said Dr. Stephen Hauser, the study's lead researcher and chairman of neurology at the University of California at San Francisco.

The biotechnology companies said the Phase II trial involved 104 patients with the most common "relapsing-remitting" form of multiple sclerosis -- in which patients have varying levels of recovery and periods of remission between flare-ups of the autoimmune disease.

The patients received either a single-treatment course of Rituxan, meaning two infusions separated by two weeks, or a placebo. The primary goal of the trial was to show a reduction in inflammatory lesions of the brain, as measured by magnetic resonance imaging scans known as MRIs.

Cumulative damage to the brain from such lesions is believed to be directly related to the extent of neurological damage that emerges in patients years or decades later, Hauser said in a telephone interview.

The number of lesions in the study at weeks 12, 16, 20 and 24 was statistically far lower in the Rituxan group. At week 24, the total number of lesions was reduced by 91 percent -- to an average of 0.5 per patient in the Rituxan-treated group, compared with 5.5 lesions in the placebo arm of the trial.

"In addition, the proportion of patients with relapses over 24 weeks in the Rituxan-treated arm was 14.5 percent compared to 34.3 percent in the placebo arm," the drugmakers said in a joint release.

LATE-STAGE TRIAL NEEDED

Hauser said it is always risky to jump to conclusions about results from small mid-stage trials, or to infer from data how well a drug works compared with other medicines that it has not been tested against.

Even so, he said the data suggest Rituxan is twice as effective in preventing relapses as the most widely used current treatments. They include Biogen Idec's older Avonex, which is a form of the immune system protein interferon, and the drug Copaxone sold by Teva Pharmaceutical Industries Ltd. <TEVA.O>.

The percentage of patients in the trial with adverse events and serious adverse events was comparable in the Rituxan and placebo groups, although there were more skin reactions at the site of infusions among patients receiving Rituxan.

"Although I think the data suggest Rituxan is better than current treatments, the question is how safe it will be over long periods of time," said Hauser, who noted that larger late-stage trials would be needed to prove the drug's safety and effectiveness.

He noted that Rituxan is typically used for limited periods by patients with lymph cancer.

Data from the trial were unveiled at the annual meeting of the American Academy of Neurology held in Boston. Rituxan is already approved to treat non-Hodgkin's lymphoma and rheumatoid arthritis.

Multiple sclerosis (MS) is a progressive condition in which overactive immune-system cells attack the myelin sheath that insulates nerves of the eye, brain and spinal cord.

About 400,000 Americans, mostly young adults, are believed to have the disease, which can lead to wide-ranging problems that include partial blindness and difficulty standing or walking.

Current treatments, including Avonex, work by modulating T-cells -- immune system cells that produce inflammation-causing compounds meant to destroy germs and other foreign invaders. But in autoimmune diseases like MS, the compounds destroy healthy tissue.

Rituxan is the first potential MS treatment that works instead by selectively depleting B-cells -- another main type of immune system cell which produces the antibodies that fight off infection and substances deemed harmful to the body.

"This is a unique mechanism of action that has not been looked at to treat MS," Sunil Agarwal, Genentech's director of immunology, said in a phone interview.

Shares of Genentech closed up 2.9 percent at $82.31, while Biogen Idec rose almost 1.7 percent to $48 on the Nasdaq.

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