Baxalta dumps Onconova's cancer drug in the midst of Phase III

Baxalta ($BXLT) is backing out of a $565 million cancer partnership with Onconova Therapeutics ($ONTX), abandoning the company's twice-failed drug as it works through a late-stage study.

The treatment, rigosertib, is in development for myelodysplastic syndrome, a rare bone marrow disorder that often develops after patients receive cancer therapy. Baxalta, then part of Baxter ($BAX), co-signed the drug in 2012, paying $50 million up front and promising up to $515 million more in exchange for its European rights.

Now, after a run of clinical setbacks, the company has decided that further development of rigosertib does "not align with Baxalta's strategic priorities," according to Onconova, and is terminating the partnership effective Aug. 30.

Baxalta's move is particularly inconvenient for the Newtown, PA-headquartered Onconova, which kicked off a 225-patient trial in December under the assumption that its partner would help foot the bill. Baxalta is obligated to pay 50% of the costs for the study, Onconova said, and the company is appealing for more funds to see the trial through.

Image removed.Onconova CEO Ramesh Kumar

"Onconova is deeply disappointed by the timing of Baxalta's decision, given that patient enrollment in this pivotal trial for patients with short life spans and no alternative available therapies commenced only three months ago," CEO Ramesh Kumar said in a statement.

Baxalta had already begun distancing itself from rigosertib before cutting the cord completely. Last year, the company called off all plans for new studies in patients with low-risk myelodysplastic syndrome, or MDS, after rigosertib failed a Phase III trial in that indication. In its latest pivotal study, Onconova is targeting patients with higher risk MDS that withstood standard treatment.

Onconova's value has plummeted since rigosertib's first failure, a 2013 miss in pancreatic cancer, and the drug's ongoing troubles in MDS have dragged the biotech into penny-stock territory. Onconova went public in the early days of biotech's IPO boom, raising $77.5 million and pricing shares at $15 each.

Meanwhile, Baxalta is on the verge of joining Shire ($SHPG) in a $32 billion merger agreement expected to close this summer. Allured by Baxalta's stable of hemophilia treatments, Shire claims the deal will transform it into the world's largest maker of treatments for rare diseases and help it grow revenue to $20 billion by 2020.

- read the statement