Thalidomide, the drug that caused a worldwide rash of birth defects 40 years ago and became a metaphor for scientific hubris, has shown promise in treating an incurable and usually fatal cancer of the bone marrow.

In a study involving 84 patients with advanced multiple myeloma for whom all other treatments had failed, the drug induced significant improvements in about a third, buying them extra months or--in a few cases--years of life.

About 10 percent of the patients achieved complete remission on thalidomide alone, a striking result in a group so sick. Researchers said many of the patients would have died within weeks if they had not taken the drug.

Thalidomide "can induce marked and durable responses in some patients with multiple myeloma, including those who relapse after high-dose chemotherapy," researchers concluded in reporting their findings in today's issue of the New England Journal of Medicine.

Researchers are now trying to determine how well thalidomide will work if used with other drugs in healthier patients just beginning myeloma treatment.

The new study is the most impressive evidence to date that thalidomide is a powerful anti-cancer substance. In an editorial accompanying the paper, Noopur Raje and Kenneth Anderson of the Dana-Farber Cancer Institute in Boston called the findings "remarkable."

Some of the data contained in the paper were reported at scientific conferences a year ago, and they helped to spark a worldwide push to research thalidomide's effect on various cancers. Early evidence suggests that it may be useful in cancers of the prostate, brain, colon and skin, among others, but none of the early research has progressed as far as the new study.

Thalidomide has multiple effects on the body, and nobody is sure which of them accounts for the drug's anti-cancer activity. A leading theory is that the drug reduces the growth of blood vessels, helping to starve fast-growing tumor cells.

At least a dozen other drugs designed to attack cancer by suppressing blood-vessel growth are under advanced study, but thalidomide--approved for sale last year to treat a complication of leprosy--is on pharmacists' shelves today, unlike the other compounds. Doctors can write a thalidomide prescription for any use they believe is justified.

The new research was led by Bart Barlogie of the University of Arkansas for Medical Sciences, a leading myeloma researcher. He described his findings in some detail two weeks ago at a conference in New York. The first patient to receive thalidomide died, he said, but in the second it had an effect so notable as to spark additional research.

"We saw this very dramatic response within weeks, literally," Barlogie said. That patient, who was at death's door when he went on thalidomide, is still alive two years later.

Side effects from the drug are minimal compared with those from traditional chemotherapy, but it does cause some problems in a minority of patients, including constipation, sleepiness and fatigue. Occasionally, it can damage nerves in the extremities.

Barlogie noted that even the most intensive treatment regimen can induce sustained remission in less than half of myeloma patients. He said thalidomide, "the first new agent with activity in myeloma in 35 years," could open the door to sharp gains.

Indeed, thalidomide is becoming one of the hottest drugs in cancer research. That is a remarkable turnabout given its history. Thalidomide was developed in Germany and went on the market as a sleeping pill in the late 1950s. It found favor as a treatment for morning sickness in pregnant women--until doctors realized it had caused horrifying birth defects, such as missing limbs, in about 12,000 babies.

Thalidomide was never approved for sale in the United States, thanks to the vigilance of the Food and Drug Administration. Generations have grown up learning about thalidomide as a prime illustration of the limits of scientific foresight. Yet interest in the drug revived in recent years as studies suggested it might be useful in treating leprosy, AIDS and other conditions.

A biotechnology company in Warren, N.J., Celgene Corp., took big risks to sponsor research on the drug at a time when few people thought it could ever win marketing approval. The drug was approved last year with tight restrictions and is sold under the brand name Thalomid, but it is labeled only for the treatment of a skin ailment in people with leprosy.

Myeloma accounts for just 2 percent of cancer deaths. But if thalidomide finds a use in one or more of the major cancers--those of the prostate, lung, breast and colon--analysts believe Celgene could have a billion-dollar drug on its hands.

Shares of Celgene closed up 16 percent, at $47.56 1/4, as traders got word yesterday of the new study.

CAPTION: Thalidomide is marketed by Celgene Corp. under the Thalomid brand name.

CAPTION: Bart Barlogie, left, interviews one of his patients in Little Rock. He led the study that found thalidomide effective in treating bone marrow cancer.