SciClone Pharmaceuticals has decided to discontinue development of its Zadaxin product as a treatment for hepatitis C after a second Phase III trial revealed no improvement with the drug.

Adding Zadaxin (thymalfasin) to standard treatment with pegylated interferon alfa had no impact on the number of patients seeing a sustained virologic response, reinforcing the negative results of an earlier Phase III trial reported in December 2005.

The company’s shares lost 10% of their value on the announcement yesterday, closing at $2.14.

SciClone said it would now concentrate on developing Zadaxin for the skin cancer malignant melanoma in collaboration with its European partner Sigma Tau. The drug is currently being investigated in combination with dacarbazine (DTIC) chemotherapy, with and without low-dose interferon alpha, in a Phase II trial involving stage IV malignant melanoma patients in Europe. Late last year, SciClone and Sigma Tau reported preliminary data from this study suggesting a dose-dependent tumor response with Zadaxin.

Sigma Tau is also studying Zadaxin in a triple therapy trial, adding it to interferon alfa plus ribavirin, but results from this are not expected until 2008 and in any event would be insufficient evidence to support approval.

Zadaxin is already approved for treating hepatitis C, as well as hepatitis B, in a number of countries outside the USA, Europe and Japan, with 90% of sales going to China. SciClone reported revenues of around $8 million from the product in the first quarter of this year.