Schering-Plough has cut its ties with US biopharmaceutical companies Valeant Pharmaceuticals and Metabasis for their hepatitis B drug pradefovir after animal testing revealed a potentially greater risk of cancer when given at higher doses.

In 2000, Metabasis licensed the compound to Valeant Pharmaceuticals, which sold worldwide rights to Schering-Plough last December for $19.2 million. Metabasis received an additional $1.8 million to pass over rights to the experimental medicine. All rights will now be returned.

Metabasis said it was disappointed but not surprised by Schering-Plough's decision, and Chief Executive Paul Laikind added: “It is our understanding that Schering-Plough made their decision to terminate for many reasons, however, it does not necessarily mean the development and approval of pradefovir is not feasible. Over the coming months, we will carefully review the clinical and toxicology results and other factors to determine the future of pradefovir."

But it was a double blow for Metabasis, which also announced yesterday that a candidate in testing for diabetes and partnered with Daiichi Sankyo had failed to reduce blood glucose levels in a Phase IIb trial. Shares in the company plummeted more than half on the news to just $3.15.