The failure of the drug, bardoxolone, sent Abbott shares down 3.5 percent on Thursday. It came as a major setback just months before the planned January 1 spinoff of Abbott's branded prescription drugs into a separate publicly traded company called AbbVie. Without the high-profile drug, Wall Street concerns about AbbVie's dependence on Abbott's $8 billion-a-year rheumatoid arthritis drug, Humira, have intensified.

An independent data-monitoring committee found excess serious adverse events and mortality in patients taking the oral anti-inflammatory drug, Abbott said in a regulatory filing.

Regulators were notified of the decision, and study participants were being informed, the company said.

Thursday's stock selloff followed similar stock declines on Wednesday after Abbott reported disappointing third-quarter sales of Humira and disclosed that AbbVie's annual tax rate will be far higher than investors had expected, undermining AbbVie's future earnings.

Abbott's market valuation shrank by $9 billion over the two-day swoon.

"The bardoxolone blow-up could not come at a worse time," Jefferies & Co analyst Jeffrey Holford said in a research note. "Investors were already reeling from yesterday's update on the tax rate for AbbVie and now one of the more visible pipeline assets has disappeared just the next day."

But Holford reiterated his "buy" rating on Abbott, saying the drug would not have driven cash flow at AbbVie for the next few years, and that the setback should not impair the new drugmaker's future dividend or valuation.

J.P. Morgan analyst Michael Weinstein said bardoxolone and Abbott's experimental treatments for hepatitis C stand out as the two potential "multibillion-dollar pipeline opportunities" for AbbVie.

Bardoxolone had been expected to deliver revenue that could cushion Abbott if rival arthritis drugs cut in to Humira's growth, and also offset plunging sales of older Abbott drugs losing patent protection, Weinstein said.

"Bardoxolone (is) coming out of our model," Weinstein said, meaning he is no longer expecting any sales from the drug.

Cowen and Co had estimated bardoxolone could generate annual sales of more than $1 billion in the overseas territories where Abbott has rights to the drug, citing a potential market of 400,000 dialysis patients in Europe.

The failed trial, called BEACON, began in mid-2011 and involved 1,600 patients with type 2 diabetes and stage 4 chronic kidney disease. It was designed to assess whether bardoxolone could delay progression to the first event of end-stage renal disease, such as dialysis or death from cardiovascular causes.

Reata in September 2010 granted Abbott exclusive rights to develop bardoxolone outside the United States, excluding certain Asian markets.

Reata's drugs are designed to activate Nrf2, a protein believed to be a principal regulator of cellular antioxidation and detoxification enzymes, while suppressing NFkB, a primary regulator of inflammatory genes.

Abbott shares ended 3.5 percent lower at $66.64 on Thursday, after falling 4.4 percent on Wednesday.

When asked to identify the side effects and deaths, and whether the drug might be salvaged, Abbott said Reata was in charge of the study and would be the appropriate company to comment. But Reata spokesman David Sherzer also declined to comment.

(Reporting by Ransdell Pierson in New York, Esha Dey in Bangalore; editing by Sreejiraj Eluvangal, Theodore d'Afflisio and Matthew Lewis)

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