On Tuesday, Elan (NYSE:ELN) and partner Wyeth (NYSE:WYE) released phase 2 results from their potential Alzheimer's disease treatment bapineuzumab. Elan's shares fell more than 40% on the news, but was the data as bad as that plunge suggests?

Let's start with the good news: These results look deserving enough to warrant continued testing of bapineuzumab.

Now the bad news: The results do nothing to diminish the uncertainty surrounding the drug's future.

Tuesday's data gives bapineuzumab's detractors and supporters alike fresh fuel for their respective arguments. Supporters can note that on some efficacy endpoints, the drug appeared to help cognitive functioning. Even though multiple compounds are already approved to alleviate Alzheimer's disease, like Aricept from Pfizer (NYSE:PFE), Namenda from Forest Labs (NYSE:FRX), and Exelon from Novartis (NYSE:NVS), they mostly just slow the progression of patients' dementia. None of them have any disease-modifying effects on patients, whereas bapineuzumab might. This fact alone makes the drug's revenue-generating potential huge, if Elan and Wyeth can get it approved.

But even if a drug displays impressive efficacy, it's not guaranteed to pass the regulators and reach the market. Bapineuzumab detractors could point out that patients with a specific genetic trait experienced a strong trend toward serious negative safety issues at higher doses of the drug, and that these patients accounted for about 65% of all participants in the study.

While bapineuzumab's safety issue increased with higher doses, the study didn't show any noticeably increased efficacy effects with higher doses of the compound (dose-respondent efficacy), raising additional concerns.

It's been a tough year for drugmakers working on Alzheimer's. Both Pfizer and Myriad Genetics (NASDAQ:MYGN) have seen clinical trials for drugs against the disease fail.

Elan and Wyeth have four large phase 3 studies under way for bapineuzumab, most of which should be completed in the 2010 or early 2011. I know it sounds like I'm always a skeptic about Elan (with poor forecasting success), but there's a method to my madness. When data sets have to be sliced and diced into subgroups to find the patients who respond to the drug, and when you combine that with no signals of increased efficacy at higher drug dosages, it's hard to argue that bapineuzumab's risk proposition has diminished.

Elan's shares usually have a higher-than-normal degree of optimism about the future baked into their price. These study results don't disqualify bapineuzumab from eventually becoming the world's biggest blockbuster Alzheimer's treatment; still, I think investors should temper their expectations for its phase 3 results, based on the most recent data.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool's disclosure policy came out much better than we expected.