On Thursday, Biogen Idec (NASDAQ:BIIB) reported "positive" trial results for what is potentially the company's most important pipeline candidate, known as anti-Lingo-1, or simply "Lingo." 

After jumping as much as 7% on the news pre-market, the stock fell into the red as some analysts raised doubts about the results' clinical significance.

Looking deeper, it's clear the development program for Lingo will be very challenging. But investors should still take note because the drug has a huge potential market. The hope is that the drug will not only reverse nerve damage caused by an eye disorder, but the effect could also be used to reverse damage created by multiple sclerosis itself, a market Credit Suisse pegs at more than $10 billion. And while the data was inconclusive, Biogen has reason for optimism.

Two steps forward, one back
Two mid-stage trials have been going on for Lingo. The results that came in Thursday were from a study that pitted the drug against acute optic neuritis, an inflammation of the optic nerve. Biogen decided to test Lingo first against this disorder because it is often the first indication that the patient may also have multiple sclerosis.

In its second mid-stage trial, Lingo is being tested directly against multiple sclerosis. That test is called SYNERGY, a name that underlines Biogen's belief that Lingo may have a synergistic effect on multiple sclerosis. Results in SYNERGY are expected next year.

In the trial against optic neuritis, the effects of the drug on its primary endpoint, changes in nerve conduction velocity, were not statistically significant. In its secondary goal, changes in nerve thickness and visual acuity, the drug failed entirely.

However, Biogen pointed out that Lingo actually demonstrated a 34% improvement compared to placebo if you eliminate patients who dropped out of the study during its 24-week duration.

The issue is what's called the intent-to-treat, or ITT, group, those patients who dropped out. Including ITT is considered by many investigators to be the gold standard in clinical trials, so it provides grounds to disagree with Biogen's positive emphasis on the top-line data.  

When all patients were analyzed, including those who dropped out, the benefit faded. The most the company could claim was a "positive trend."

"We believe the results are encouraging, as this is the first clinical trial to provide evidence of biological repair in the central nervous system by facilitating remyelination following an acute inflammatory injury," said Dr. Alfred Sandrock, chief medical officer at Biogen Idec.

He added, "We look forward to the SYNERGY results in 2016 to further advance our understanding of this molecule in MS, including a full dose response. The totality of the data from the two Phase II studies may provide us with a clearer understanding of anti-LINGO-1's clinical potential."

Potential game-changer?
Biogen has scored a number of successes in the clinic in recent years. Just a few months ago, it nailed down the FDA's approval of Plegridy, a new multiple sclerosis drug. And that's on top of its approval of Tecfidera, a drug that is being considered a new standard of care for many patients with relapsing MS.

More than 2.3 million people worldwide have multiple sclerosis. Currently, the disease can be managed, but not cured. Treatment for MS merely reduces new damage to the brain; it does nothing to repair the damage already done.

Biogen's existing multiple sclerosis drugs, including Avonex, Tysabri, Tecfidera, and Plegridy, work by slowing down the degradation of nerve fibers. If the Lingo antibody can prevent the destructive Lingo-1 protein from being produced, it could remyelinate the nerve fibers. If that happens, the damage caused by the disease could be reversed.

"Up until today, we've had no clinical proof that [Lingo] has an effect in human studies," said Ravi Mehrotra, a biotech analyst with Credit Suisse. "What the data shows is that it has an effect on nerve conductors. That doesn't mean it will ultimately be successful, but it's an important proof of biology."

"We're moving into therapies that do more than just slow down the progression of the disease; we're trying to develop drugs that can reverse some of the damage by remyelinating the CNS," said the EVP of R&D, Doug Williams, Ph.D., when explaining Biogen's strategy.

Other good and bad news came from the clinical trial. Lingo was well tolerated at a very high dose. But the trial didn't show how much of the drug was able to get into the brain, where it needs to be to have an effect. Getting across the blood-brain barrier is a common problem for drugs, including chemotherapy agents, and Lingo is a big molecule.

"This will clearly be the focus of investor/analyst questioning during next week's J.P. Morgan conference," said Evercore ISI analyst Mark Schoenebaum. He believes that Biogen's stock will likely move based on how well the company defends these results. While investors are clearly less than impressed, it will take a while for Wall Street to digest these results.

33% chance of ultimate approval?
Biogen is playing to its strength with this line of research. Imperfect results and even outright R&D failures often lead to a tipping point, where enough is understood to hone in on a successful treatment.

Investors can also seek inspiration in how great a job this company is already doing in multiple sclerosis. Biogen owns a staggering 39% of the global MS market. In 2014, combined global sales of its MS drugs should have reached $7.86 billion, according to analysts' estimates cited by The Wall Street Journal.

Leerink Partner's Joseph Schwartz wrote in a research note that he was "mildly encouraged" by the data. He is keeping his estimates of ultimate approval of the drug at 33%. Schwartz has some street cred, as he was named the number one biotech stock picker by the WSJ in 2010, as part of its Best of the Street competition, so his recommendation is certainly one deserving of attention. 

Other analysts are less impressed. Mark Schoenebaum said, "The data are encouraging, but certainly not definitive."

It's certainly possible that 33% is too optimistic, given the R&D difficulties neurological drugs face, as well as the daunting gauntlet investigational compounds must go through before the FDA green-lights them. Still, with this line of research, Biogen is following that old adage: Invest in what you know. Getting Lingo, or similar compounds, out of the clinic and into the marketplace is a long-shot. But multiple sclerosis is now the most common disabling neurological disease of young adults in the world. And if patients can someday be treated with drugs that will reverse the disorder, that's a really big deal, and well worth pursuing.