Merck & Co has pulled the plug on a deal it had to develop Japan Tobacco's JTT-305, an investigational oral bone-growth stimulating agent for osteoporosis.

The firms signed the original agreement in September 2008 and Merck gained worldwide rights, except for Japan, to the drug, an oral calcium sensing receptor (CaSR) antagonist. Having received the notification from the US major, Japan Tobacco has decided to end the development of JTT-305 both at home and abroad, in consideration of the results of the domestic and overseas clinical trials.

The Tokyo-based company said that ending the deal which have "only a small impact" on its financials.

Government to sell stake in Japan Tobacco for $22.2 billion

Meantime, Japan Tobacco, the world's third-largest cigarette maker which sells brands such as Winston, Camel and Benson & Hedges, has seen its share price rise since the Japanese government announced three weeks ago that is looking to sell its 50% stake in the firm.

The holding is valued at 1.7 trillion yen ($22.2 billion) and the funds would be used to rebuild northeast Japan, which was hit by the earthquake and tsunami in March. However, the sale will not happen quickly as the government plans to cut its stake to one-third over the next five years, and the rest would be divested over another five years.

Japan Tobacco moved into the pharmaceuticals business in 1987. The group concentrates on R&D, while its Torii Pharmaceutical unit is in charge of manufacturing and sales.