Shares in US group Nastech fell as much as 36% in trading yesterday, as investor confidence was hammered on the news that US drug giant Merck & Co has returned the rights to PYY3-36, the firm’s experimental anti-obesity nasal spray.

Merck has decided to terminate its involvement in the agent’s development after it failed to show efficacy in a proof-of-concept trial, but Nastech remains confident in the drug’s potential and plans to carry on with its clinical program.

"Based on our review, Nastech believes that clinical trial results to date support the continued development of this important investigational product for the treatment of obesity, and we remain committed to the further advancement of the PYY clinical program this year,” Nastech chief executive Steven Quay said in a statement.

Under the terms of the groups’ joint development deal, originally signed in 2004, Nastech received an initial payment of $5 million and could have received up to $131 million if development and approval milestones were achieved. The agreement’s termination will result in around $3.7 million in revenue for Nastech which it will book in the first quarter.