Eleven Bio shares plummet after eye drug fails late-stage study

* Fails two main goals

* To continue testing drug in allergic conjunctivitis

* Shares (Frankfurt: DI6.F - news) fall as much as 75 pct (Adds analysts comments; updates shares)

By Rosmi Shaji

May 18 (Reuters) - Shares of Eleven Biotherapeutics Inc (NasdaqGM: EBIO - news) slumped more than 75 percent on Monday after the company said it would not develop its lead drug to treat dry eye disease following a failed late-stage study.

The company's shares, which were the most active on the Nasdaq in early trading, fell to a record low of $2.89. The eye drug developer's stock opened at $10.35 in its market debut in February 2014.

Dry eye is characterized by insufficient tears to lubricate and nourish the eye, resulting in inflammation.

About 19 million people in the United States suffer from dry eye disease, including seven million with the moderate to severe form, according to the company's website.

The drug, EBI-005, which was tested on 669 patients with moderate-to-severe dry eye disease, failed both the main goals in the trial, Eleven Bio said.

The company would not conduct another late-stage study for dry eye scheduled for later this year, but continue evaluating the drug's use in allergic conjunctivitis, Chief Executive Abbie Celniker said in a statement.

Eleven Bio said it expects to initiate late-stage study of the drug for treating moderate-to-severe allergic conjunctivitis in the second half of 2015.

Citi analysts said the failure of EBI-005 is a positive for Allergan Inc's Restasis "given the lack of an incremental potential dry eye competitor on the market in 2017".

Restasis is the only FDA-approved drug to increase tear production in patients with chronic dry eye disease.

Restasis has roughly $1 billion in annual sales, Cowen and Company's Ken Cacciatore wrote in a note earlier this month.

Cacciatore also said a superior therapeutic option could expand the dry eye market to $3 billion-$4 billion.

British drugmaker Shire Plc (Xetra: S7E.DE - news) 's lifitegrast is currently undergoing FDA review for use in dry eye. A decision is expected by October.

Cambridge, Massachusetts-based Eleven Bio's shares were down 71 percent at $3.38. More than 9.8 million shares were traded by 11:06 a.m. ET, about 78 times their 10-day average.

(Reporting by Rosmi Shaji in Bengaluru; Editing by Savio D'Souza and Sriraj Kalluvila)