Coley Pharmaceutical's ( COLY) shares sank more than 12% after the company said it's suspending the development of its experimental hepatitis C drug Actilon and firing 22% of its workforce.

Shares lost $1.23 to $8.66 Tuesday.

"The decision to suspend a drug development program is a difficult one," said CEO Robert Bratzler. "However, we are confident that the changes being made today are the right ones for our shareholders."

The Wellesley, Mass.-based company fired 33 employees and expects to take a $1.1 million charge, primarily in the first quarter, for severance and outplacement support for those affected by the job cuts.

Actilon was well-tolerated in early clinical trials, but a later trial showed no meaningful data on viral load reduction in a group of patients observed after 48 weeks of treatment.

Actilon belongs to a class of drugs called toll-like receptors, which are designed to induce a natural immune response to viral infections. Coley plans to focus its resources on discovering and developing new toll-like receptors and expects to outsource its drug development going forward.

Suspending Actilon's development is expected to eliminate approximately $15 million in planned expenses. The company says its cash and investments at the end of the fourth quarter 2006 will be enough to finance its capital requirements for approximately three years.

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