EPIX Pharmaceuticals (NASDAQ:EPIX) initiated a phase 2A study of its Alzheimer's disease drug, PRX-03140, to get safety and tolerability information. Instead, it got much more than it had bargained for.

In a two-week trial, the 150 mg dose of PRX-03140 achieved a mean 5.7 point improvement on the Alzheimer's Disease Assessment Scale cognitive subscale (ADAS-cog). That's pretty darn impressive -- Alzheimer's drugs usually demonstrate a three- to four-point improvement after a full 12 to 24 weeks in clinical studies.

With only 10 subjects receiving each dose level of the drug (150 mg, 50 mg, placebo), the 150 mg treatment arm showed a statistically significant improvement compared to subjects receiving the placebo. The latter had a 0.2 point worsening in their ADAS-cog score.

The data point I like even more is the 50 mg dose of PRX-03140, which showed a 1.1 point improvement on the ADAS-cog. While that's not as impressive as the 150 mg dose -- and the smaller dose won't likely be used in future studies -- it demonstrates that there's a dose response to the drug, which lends confidence to the argument that the effects of the 150 mg dose aren't a fluke.

In the study, PRX-03140 was also tested in combination with Eiasi's and Pfizer's (NYSE:PFE) Aricept, but the addition of PRX-03140 didn't statistically change the ADAS-cog score. Aricept is thought to act by preventing the loss of acetylcholine, a molecule that improves cognitive symptoms of Alzheimer's disease.

PRX-03140, on the other hand, is believed to increase the production of acetylcholine. The idea of putting the two together made perfect sense, and it was hoped that the combination would have a stronger effect than either one alone. Unfortunately, that didn't happen. One explanation is that the patients taking Aricept were already in better shape, and therefore it would take a longer study to show any improvement from adding PRX-03140.

As for the original safety goals? It passed.

EPIX plans to initiate a larger and longer phase 2B clinical trial of PRX-3140 in the first half of 2008. If that data is as strong as the phase 2A data, GlaxoSmithKline (NYSE:GSK) will almost certainly exercise its option to pick up the compound for further development. With compounds such as Novartis' (NYSE:NVS) Exelon and Johnson & Johnson's (NYSE:JNJ) Razadyne producing fair but certainly not stellar results, PRX-03140 could pick up a substantial chunk of the $4 billion market.

Even after the run-up in stock price Tuesday, Epix has a market cap of less than $150 million. That's a pretty fair value for a company with a few phase 2 candidates, including one that could storm onto the Alzheimer's-disease marketplace if it keeps up these strong results.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.