This phase I trial studies best dose and side effects of liposome-encapsulated daunorubicin-cytarabine (CPX-351) and how well it works in treating patients with high risk myelodysplastic syndrome or chronic myelomonocytic leukemia that has come back or has not responded to treatment. Drugs used in chemotherapy, such as liposome-encapsulated daunorubicin-cytarabine, work in different ways to stop the growth of cancer cells, either by killing the cells, by stopping them from dividing, or by stopping them from spreading.

PRIMARY OBJECTIVES:

I. To characterize the safety and tolerability of CPX-351 in patients with intermediate-2 or high-risk myelodysplastic syndrome (MDS). (Dose Escalation Stage) II. To determine the maximum tolerated dose (MTD) of intravenous CPX-351 in patients with intermediate-2 or high-risk MDS. (Dose Escalation Stage) III. To further characterize the safety and tolerability of CPX-351 in patients with intermediate-2 and high-risk MDS. (Dose-Expansion Stage) IV. To evaluate preliminary efficacy of CPX-351 in patients with intermediate-2 or high-risk MDS. (Dose-Expansion Stage)

SECONDARY OBJECTIVES:

I. To assess overall response (OR) rate. II. To assess overall survival. III. To assess duration of response. IV. To assess relapse-free survival. V. To assess safety profile.

OUTLINE: This is a dose-escalation study.

INDUCTION THERAPY: Patients receive liposome-encapsulated daunorubicin-cytarabine intravenously (IV) over 90 minutes on days 1, 3, and 5 in the absence of disease progression or unacceptable toxicity. After 2-5 weeks, patients who do not achieve a complete response (CR)/CR with incomplete bone marrow recovery (CRi)/CR with incomplete platelet recovery (CRp), have acceptable or no toxicity, and have stable disease and no disease progression may receive liposome-encapsulated daunorubicin-cytarabine IV over 90 minutes on days 1 and 3 in the absence of disease progression or unacceptable toxicity.

CONSOLIDATION THERAPY: Patients who achieve at least a hematological improvement (HI) response, receive liposome-encapsulated daunorubicin-cytarabine IV over 90 minutes on days 1 and 3. Treatment repeats every 28 days for up to 12 cycles in the absence of disease progression or unacceptable toxicity. After 5-8 weeks, patients who do not show clinically significant disease progression or unacceptable toxicity may receive liposome-encapsulated daunorubicin-cytarabine for up to 12 additional cycles.

After completion of study treatment, patients are followed up at 30 days and then every 6 months thereafter.

Inclusion Criteria:

• Diagnosis of MDS or chronic myelomonocytic leukemia (CMML) according to World Health Organization (WHO)
• Patients are either not eligible for or choose not to proceed with a stem cell transplant at the time of enrollment
• MDS and CMML classified by International Prognostic Scoring System (IPSS) as intermediate-2/high risk with excess blasts > 5%, or with 10-19% bone marrow blasts
• No response following at least 4 cycles of therapy or relapse after initial CR, partial response (PR), or HI or progression after any number of cycles of either azacitidine, decitabine, guadecitabine or ASTX727 (oral decitabine) as single agents or in combination with other investigational agents
• Patient (or patient's legally authorized representative) must have signed an informed consent document indicating that the patient understands the purpose of and procedures required for the study and is willing to participate in the study
• Total bilirubin < 3 mg/dL (will allow less than 5 x upper limit of normal [ULN] if Gilbert's at investigator's discretion)
• Aspartate aminotransferase (AST) or alanine aminotransferase (ALT) =< 3 x ULN
• Serum creatinine clearance > 30 mL/min and no end/stage renal disease
• Hydroxyurea for control of leukocytosis or use of hematopoietic growth factors (eg, granulocyte-colony stimulating factor [G-CSF], granulocyte-macrophage colony-stimulating factor [GM-CSF], procrit, aranesp, thrombopoietins) is allowed at any time prior to or during study if considered to be in the best interest of the patient

Exclusion Criteria:

• New York Heart Association (NYHA) class III or IV congestive heart failure or left ventricular ejection fraction (LVEF) < 50 by echocardiogram or multigated acquisition (MUGA) scan
• History of myocardial infarction within the last 6 months or unstable/uncontrolled angina pectoris or history of severe and/or uncontrolled ventricular arrhythmias
• Uncontrolled infection not adequately responding to appropriate antibiotics
• Female patients who are pregnant or lactating
• Patients with reproductive potential who are unwilling to following contraception requirements (including condom use for males with sexual partners, and for females: prescription oral contraceptives [birth control pills], contraceptive injections, intrauterine devices [IUD], double-barrier method [spermicidal jelly or foam with condoms or diaphragm], contraceptive patch, or surgical sterilization) throughout the study
• Female patients with reproductive potential who have a positive urine or blood beta-human chorionic gonadotropin (beta HCG) pregnancy test at screening
• Patients receiving any other concurrent investigational agent or chemotherapy, radiotherapy, or immunotherapy (within 14 days of initiating study treatment)
• Prior cumulative anthracycline exposure of > 550 mg/m^2 daunorubicin or equivalent, or > 400 mg/m^2 in patients who received radiation therapy to the mediastinum