By Lisa Seachrist

Washington Editor

WASHINGTON — Alteon Inc.'s stock plummeted 50 percent on Thursday after an external advisory panel recommended that the company end a Phase III trial of its lead diabetes drug candidate, pimagedine, because of an excess of side effects.

Shares (NASDAQ:ALTN) closed at $4.9375, down from Wednesday's $9.875.

The Ramsey, N.J., company reported late Wednesday its External Safety Monitoring Committee advised ending the ACTION II — a Phase III trial of the drug designed to protect kidneys in 599 Type II diabetic patients with neuropathy — as a result an increase in side effects. However, neither Alteon nor its pimagedine partner, Genentech Inc., of South San Francisco, has seen the data from the trial.

The same panel examined interim results of pimagedine in a Phase III trial in Type I diabetes and found no reason to discontinue that study, which is called ACTION I.

"Until we see the data, it is really premature to speculate on what this means for the drug," said Paul Laland, Genentech's director of corporate communications. "We obviously respect the opinion of [the committee], but we need to have conversations with FDA to see how to proceed."

Pimagedine is designed to inhibit formation of advanced glycosylation end-products (AGE) by preventing glucose from binding to proteins in the blood. Everyone develops AGE, but diabetic patients are prone to high levels as a result of excess glucose in their bloodstreams. Accumulation of AGE can damage kidneys, blood vessels and nerves.

In July 1997, Alteon expanded a Phase II trial of the drug in Type II diabetics to create ACTION II. Wednesday's announcement was a setback for a drug that appeared to be on the fast track and had so impressed Genentech that the company entered into a collaboration potentially worth $200 million for Alteon in early December 1997.

Alteon has not been informed what side effects led the committee to its recommendation and why those side effects weren't seen in Type I diabetes patients. FDA will review the data and share its findings and recommendations with the company.

Genentech's stock (NYSE:GNE) was unaffected by the news, closing at $69.563 per share, up $0.188. *