Shares of Oncothyreon (ONTY) are plunging after a vaccine the company developed to treat lung cancer failed in a clinical study.

Oncothyreon's partner, Merck KGaA (MKGAY) of Germany, which is testing the vaccine Stimuvax, said the treatment failed to meet its goal of improving overall survival in a pivotal study. The trial included more than 1,500 patients with advanced non-small cell lung cancer, which is the most common form of the disease. 

Oncothyreon CEO Robert Kirkman said on a conference call with analysts Wednesday that he was disappointed about the news, but he was unable to provide specific details about the study's outcome. Merck, which licensed the treatment, did not share that information with him, he said.

"These results are disappointing for you, for us and, most especially, for the patients with non-small cell lung cancer who need new therapies," Kirkman told analysts.  

The company's stock fell 58% to $1.91 in morning trading Wednesday. The shares have lost three-quarters of their value in 2012.

Investor expectations were very high for Stimuvax at the beginning of this year. In fact, news that key study results for the vaccine probably wouldn't be available until 2013 sent Oncothyreon's shares tumbling in March. At the time, Kirkman said that he was still encouraged that the trial wasn't stopped because of lack of effectiveness. He called Stimuvax a potentially "game-changing product" for lung cancer. The product was designed to enable a patient's immune system to fight the cancer.

Merck said it would review Stimuvax's effects on some patient subgroups in the trial but provided no specifics. Study data will be presented at upcoming scientific meetings, which likely will include the annual meeting of the American Society of Clinical Oncology in the spring.

Kirkman says he expects Oncothyreon will end this year with about $80 million in cash and short-term investments. That would fund roughly two years of operations using the company's current burn rate, he says. The company will provide more financial guidance in March when it announces fourth-quarter results, Kirkman says.

Moving past Stimuvax's flop, investors who stick with the stock will focus on another cancer treatment, PX-866, says Cowen & Co. analyst Simos Simeonidis.

PX-866 is an oral treatment being studied in combination with older cancer drugs and by itself. Simeonidis says he expects some study data for this drug to be revealed early next year.

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