NEW YORK (Reuters) - Eli Lilly & Co's (>> Eli Lilly and Co) massive setback for its experimental Alzheimer's disease treatment on Wednesday sent investors scrambling to re-evaluate shares of the U.S. drugmaker and those of companies making competing therapies, including biotech stalwart Biogen Inc (>> Biogen Inc).

Lilly shares tumbled 10.5 percent, and fell to their lowest point in two years during the session, after the company said its drug failed to slow loss of cognitive ability in patients with mild symptoms.

The shares were on pace for their biggest one-day percentage decline since the 2008 financial crisis, shaving about $9 billion of market value.

Biogen shares were down 4 percent, but had reduced their initial losses by more than half from premarket trading as investors assessed the damage to the prospects of the company's drug that works in a similar way to Lilly's.

The results for Lilly's solanezumab were a highly anticipated event on Wall Street, with some analysts saying the company's shares could have leapt 20 percent or more had the clinical trial succeeded.

Although Alzheimer's disease has been a notoriously difficult area for drug development, some investors were clearly optimistic that the drug would meet the study goals. A buy-side investor survey by Evercore ISI at the end of September found that 56 percent had expected the study to meet its main goal.

Morningstar analyst Damien Conover had been factoring in a 50-percent chance of solanezumab approval, with peak probability sales of nearly $4 billion a year. "Therefore, the negative trial results have a large impact on our fair value estimate."

Lilly's shares had traded at just over 19 times earnings estimates for the next 12 months ahead of the study results, making their shares more expensive than other large U.S. and European drugmakers.

Wednesday's decline left shares trading at about 17 times estimates, below Bristol-Myers Squibb Co (>> Bristol-Myers Squibb Co) but still well ahead of those of Pfizer (>> Pfizer Inc.) and GlaxoSmithKline (>> GlaxoSmithKline plc).

PHARMA CUPBOARD NOT BARE

The stock valuation shows investor confidence that Lilly's cupboard is not bare without solanezumab, as medicines for diabetes, rheumatoid arthritis and psoriasis are expected to propel its business.

Lilly's earnings per share are expected to rise by 14 percent a year on average over five years, said Sanford Bernstein analyst Tim Anderson, making the company "among the very best growers in our coverage universe."

According to Starmine data, Lilly's average annual earnings per share growth is expected to be 7.8 percent over the next five years, nearly double that of peers.

Lilly executives themselves have told analysts on recent quarterly conference calls they project average annual revenue growth of at least 5 percent a year through 2020, even without solanezumab.

"They are telling you that their business can work regardless, so in many ways they provided some prophylaxis to the market," said Tony Butler, an analyst with Guggenheim Securities.

The results nonetheless will sting for Lilly investors. Balyasny Asset Management, Franklin Advisers, Wellington Management and Vanguard Group made large additions to their Lilly holdings as of Sept 30, according to securities filings tracked by Thomson Reuters.

Lilly's setback raised questions in the strategy of targeting the beta amyloid protein, believed to cause brain plaques, which Biogen's aducanumab also targets.

But Biogen's drug is different, including data showing it could be more effective in targeting beta amyloid, according to Raymond James analyst Chris Raymond.

While "the risk has gone up with respect to aducanumab," Raymond said, part of the reason the stock recovered the bulk of its initial losses on Wednesday was that investors did not completely discount the chance aducanumab could still succeed.

Investors should learn more about aducanumab's potential at an Alzheimer's conference starting Dec. 8.

Another possible support for shares of Biogen, which has a leading franchise of multiple sclerosis drugs: the company, with a market value of about $66 billion, has been the subject of takeover speculation.

With more data expected in the near term, Raymond said, "we anticipate greater clarity and think this could actually help to resolve questions around how to value aducanumab as it relates to a potential Biogen takeout."

(Reporting by Lewis Krauskopf; Editing by Dan Burns and Nick Zieminski)

By Lewis Krauskopf