Merck KGaA said today it terminated its deal to license from Ono Pharmaceutical the Phase II multiple sclerosis drug candidate ceralifimod (ONO-4641) by mutual agreement, returning the compound rather than advancing  it into Phase III with Ono.

In a statement, Ono said both companies agreed to terminate their agreement “considering the significant change in market circumstances of multiple sclerosis treatment, [and the resulting] large and extensive Phase III studies required.” Those studies, according to Ono, pushed back the timing of an NDA filing for ceralifimod.

“Ono will explore any further development of ONO-4641,” the company added.

Merck added little on why it was ending efforts to develop ceralifimod, saying in its own two-paragraph statement only that the compound “does not meet Merck KGaA’s threshold for continued investment.”

Merck acquired worldwide exclusive license rights from Ono in October 2011 for the development and commercialization of ceralifimod outside of Japan, Korea, and Taiwan. At the time, Merck paid Ono ¥1.5 billion (about $14.7 million) upfront, and agreed to shell out an additional undisclosed amount in payments tied to development, regulatory and commercial milestones.

Ceralifimod is sphingosine-1-phosphate (S1P) receptor agonist designed to inhibit the infiltration of lymphocytes into lesions by keeping lymphocytes in lymph nodes. Merck had viewed ceralifimod as an anchor to its hopes of expanding a specialty concentration in MS by developing a successor to its drug Rebif—which ranked No. 7 on GEN’s list of Top 10 Multiple Sclerosis Drugs earlier this year with €460 million (about $623 million) in 2013 sales. That figure did not include sales by Pfizer, which doesn’t report individual numbers for Rebif.

Merck licensed ceralifimod just a few months after ending efforts to gain approval for another MS drug, the oral immunosuppressant cladribine. That decision followed a complete response letter from FDA indicating that new studies were needed to satisfy safety and risk-benefit concerns, as well as a European Medicines Agency determination that clinical data did not sufficiently justify adding an MS indication for cladribine, which is EU-approved for hairy cell leukemia.

In April 2012, the companies reported strong results from their Phase II DreaMS (Drug Research EvaluAtion for Multiple Sclerosis) study, showing that patients taking 0.05, 0.10, or 0.15 mg of ceralifimod had, respectively, 82%, 92%, and 77% fewer Gd-enhancing brain lesions compared to placebo. A total of 407 patients between ages 18 and 55 with relapsing-remitting MS were randomized to receive placebo or one of three active doses of ONO-4641 once daily for 26 weeks.

Last year, the MS market was reshaped when Biogen Idec launched Tecfidera following Phase III results that showed better safety and efficacy results than Aubagio (Sanofi) and Gilenya (Novartis). Tecfidera finished last year with $876 million in sales—topping GEN’s list of Top 18 Best Selling Drugs Launched in 2013, published last month—and the compound is expected to achieve blockbuster status by surpassing $1 billion in sales this year.

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