From this interview:
Why was multiplayer cut from PROTOTYPE?
Tim Bennison: From its inception PROTOTYPE was planned first and foremost as a single player open-world/action game. Naturally, with Alex’s genetically mutated shape-shifting abilities, we started to explore what would happen if he were to sub-divide into two PROTOTYPEs and what kind of multiplayer gameplay we could create around that concept. We’ve been looking at this potential multiplayer idea much more closely as PROTOTYPE’s development has been progressing, and while it’s a great concept and gameplay bonus, our conclusion is that we won’t be able to pull it off with the same level of quality and polish that we’re aiming for with the original single player story.
And yet something tells me that a slightly rough-around-the-edges city combat game where you're playing alongside a friend would still be more compelling than the single player game, no matter how polished. Just look at Crackdown. This seems like a really unhealthy decision, and I wonder whether co-op actually broke something major in the game's innards.