By Katie Reid
ZURICH (Reuters) - U.S. drugmaker Merck & Co <MRK.N> is to discontinue a major trial of a key vaccine from Intercell <ICEL.VI> designed to protect against serious hospital infections, the Austrian biotech firm said on Wednesday.
The decision is the latest blow to Intercell, which has faced a series of setbacks recently. Concerns about its pipeline have weighed on the volatile stock, which has lost more than half of its value so far this year.
The group's shares slid over 20 percent, but later pared some of those losses and at 0910 GMT (5:10 a.m. ET), shares were down 14.21 percent, still severely underperforming a near flat European healthcare index <.SXDP>.
The decision to end the Phase II/III study of V710 comes after experts assessed the vaccine's benefits against its risks. Intercell said a press release with more information was due at around 1100 GMT.
"This is a significant setback for Intercell, and was the most eagerly anticipated stock catalyst, with V710 seen as potential validation of the company's technology," analysts at Jefferies said in a note.
Intercell and Merck earlier halted patient enrollment in the clinical trial of the vaccine to prevent the Staphylococcus aureus (S.aureus) infection due to a recommendation from the study's independent data monitoring committee.
The V710 vaccine had been tipped to have sales of more than 1 billion euros ($1.47 billion). Analysts see considerable potential for a vaccine like V710, which could be used in elective surgery, or even more broadly on hospital admission or in care homes for the elderly.
The S. aureus infection can cause serious health complications and death.
About 50 percent of S. aureus strains isolated in hospitals worldwide are resistant to multiple antibiotics, and methicillin-resistant S. aureus (MRSA) is a serious health problem in many countries.
STRING OF SETBACKS
Loss-making Intercell has recently appointed a new chief executive and reviewed its strategy as it tries to deal with various product disappointments and seeks to get more products to market.
The group, which some analysts think could in the end be put up for sale, said on Wednesday it was looking to cut costs by more than 50 percent.
"The past year has been a tough year with high losses and a significant setback for us and our shareholders," CEO Thomas Lindelbach said.
But Lingelbach said he was still upbeat about the group's future as he expects further growth of its Japanese encephalitis vaccine Ixiaro, its only marketed product.
The group is hoping for 60 to 70 percent sales growth this year for the vaccine, though Ixiaro took a knock last month when the group had to recall batches in Europe due to a possible loss of potency.
Intercell distributes this vaccine with Novartis <NOVN.VX> and the Swiss drugmaker holds almost 15 percent of Intercell.
Japanese Encephalitis can be a serious illness causing inflammation of the brain. It is caused by a virus and passed to humans by the bite of infected mosquitoes.
"Focus now returns to Ixiaro's quarterly sales ramp-up and the early-stage pipeline, suggesting near-term the stock is likely to continue trade at a discount to fair value," the analysts at Jefferies said, adding Intercell should have enough cash to fund its operations until 2014.
(Editing by Ben Hirschler and Hans Peters)