Shares of the Swiss drug company

Serono

(SRA)

slipped Wednesday after the company said late-stage clinical trials had failed for experimental treatments for psoriasis and a deadly skin cancer.

Both drugs had reached phase III clinical trials, the last stage before a product is submitted to health regulators. Serono said it would continue to develop the skin cancer drug Canvaxin. It won't pursue Onercept for moderate to severe psoriasis.

Serono's stock fell quickly after U.S. markets opened, but it regained some ground by late morning. Recently, it traded down 20 cents, or 1.1%, to $17.84. It had fallen as low as $17.37.

The cancer test news flattened the stock of

CancerVax

(CNVX)

, a tiny Carlsbad, Calif.-based biotech company that licensed Canvaxin to Serono. CancerVax's stock fell $2.76, or 44%, to $3.52.

Although Serono is dwarfed by its giant Swiss neighbors

Roche

and

Novartis

(NVS) - Get Report

, its $10.4 billion market capitalization makes it bigger than most biotech companies.

Serono is best known for Rebif, a multiple sclerosis treatment, which accounted for $1.1 billion of $2.5 billion in corporate revenue last year. The next biggest product is the fertility drug Gonal-f, which produced $573 million in revenue.

Serono said it decided to stop work on the psoriasis treatment after clinical investigators said two patients had developed sepsis. One died.

Serono asked an independent safety monitoring board to examine 12 weeks of test data for three clinical trials. The board found that the drug was less effective in these late-stage tests than in mid-stage clinical trials and less effective than other treatments. The safety committee recommended that Serono stop working on the drug, and the company agreed.

With the cancer drug test, Serono said the unfavorable test result only means it will stop evaluating the drug as a treatment for the most lethal stage of malignant melanoma. An independent safety monitoring board said test results show the drug is "unlikely to provide significant evidence of a survival benefit" compared with placebo, Serono said.

Serono, however, will continue to test Canvaxin for patients with a better chance of survival -- stage III cancer rather than stage IV. Serono said it will be able to make an interim analysis during the third quarter and a final analysis by mid-2006.

"This news is disappointing," said David F. Hale, president and CEO of CancerVax. "Treatment of patients with stage IV melanoma has proven to be very difficult and, as yet, no therapeutic agent has been shown to impact overall survival in these patients."