UPDATE 1-Merck KGaA suspends Stimuvax cancer vaccine trials

* One trial participant contracted encephalitis, Merck says

* Phase II trial, recruitment for Phase III put on hold

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FRANKFURT, March 23 (Reuters) - German drugmaker Merck KGaA MRCG.DE put on hold all testing on humans of its experimental cancer vaccine Stimuvax after a Phase II trial participant contracted encephalitis. The patient was taking part in a trial arm whose participants received Stimuvax in combination with the chemotherapeutic agent cyclophosphamide, which is not used in the other Stimuvax studies, Merck said on Tuesday.

Germany's Merck is racing with biotech firms including Transgene TRNG.PA, Dendreon Corp DNDN.O and Antigenics AGEN.O to bring cancer vaccines to market.

Merck has been testing Stimuvax, based on an active ingredient known as LBLP25, in the second of three phases required for regulatory approval as a treatment against multiple myeloma.

It has also started Phase III trials of the drug, which it is co-developing with Oncothyreon Inc ONTY.O, as a treatment against lung cancer and breast cancer.

The study suspension adds to Merck’s recent setbacks in drug development.

It last year failed to win regulatory approval for the use of its blockbuster-hopeful Erbitux against lung tumours, the most common form of cancer, and the prospects for U.S. approval of its experimental multiple sclerosis pill are uncertain. [ID:nGEE5AT1KS]

Reporting by Ludwig Burger