By Lewis Krauskopf

NEW YORK (Reuters) - Pfizer Inc (PFE.N: Quote, Profile, Research) and Nektar Therapeutics (NKTR.O: Quote, Profile, Research) said on Wednesday clinical trials of the inhaled insulin Exubera found increased cases of lung cancer, leading Nektar to stop seeking a marketing partner for the troubled product and abandon it.

Nektar shares tumbled 25 percent, while shares of MannKind Corp (MNKD.O: Quote, Profile, Research), which has been developing its own inhaled insulin, plummeted 58 percent. Pfizer was down slightly at $20.90.

The lung-cancer revelation dealt a final setback to Exubera, which held the promise of letting diabetics avoid needle sticks and was once projected by Pfizer to be a $2 billion-a-year blockbuster. Instead, Exubera has been a commercial flop that has sullied the inhaled insulin field.

Over the course of the clinical trials, Pfizer said six of the 4,740 Exubera-treated patients versus one of the 4,292 patients not treated with Exubera developed lung cancer. One lung cancer case was also found after Exubera reached the market.

Pfizer said on Wednesday it updated the product's labeling to include a warning with safety information about lung cancer cases found in patients who used Exubera, which U.S. regulators approved in January 2006.

The warning states all patients who developed lung cancer had a history of cigarette smoking, and that too few cases existed to determine whether the development of lung cancer is related to Exubera use.

HIGH HOPES

Despite high hopes for Exubera, it garnered few prescriptions. The medicine was dogged by concerns about lung safety and about the inconvenience of the bulky device used to administer the product.