Merck & Company has surrendered its rights to the weight-loss nasal spray PYY3-36 after concluding from a "Preliminary Proof of Concept Study" that the drug was not effective, according to the biotech company Nastech Pharmaceuticals.

Nastech, announcing that it had reacquired all rights to the diet drug from Merck, said it continued to believe in PYY3-36, and intended to press forward with a Phase II clinical trial program.

PYY3-36, is a hormone that occurs naturally in the small intestine after a person consumes food and it is thought to send messages to the brain to signaling fullness.

Nastech and Merck announced their partnership in September 2004, when Merck said it would pay $5 million up front and as much as $131 million at milestones along the road to approval to help develop the weight-loss drug as a nasal spray. Under the agreement, Merck assumed primary responsibility for clinical and non-clinical studies.

This agreement was terminated with receipt of Merck's notice effective March 1, 2006. Nastech said it would recognize $3.7 million in revenue in the first quarter, the balance of the initial $5 million payment by Merck.

Obesity was one of nine targets that Merck identified in December as at the heart of a refocusing of its research and development strategy.

"Merck does not typically discuss Phase I data or details until such time that they are published or otherwise made publicly available," said Merck spokeswoman Amy Rose. "But based on the assessment of our scientists, the compound did not meet Merck's scientific threshold for continued development and so we made the decision to discontinue the program."

Nastech, in its statement, made it clear that it did not agree with Merck's assessment.

"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," said Dr. Steven C. Quay, CEO of Nastech.

"While we are disappointed that we and Merck could not reach a mutually acceptable agreement following discussions with a view to finding terms of agreement for the continued development of PYY intranasal formulations under the collaboration agreement, we will continue to advance the program," Quay said.

"Assuming successful completion of further dose optimization studies, Nastech will undertake a Phase II clinical trial program, after which Nastech intends to seek a new commercial partnership for PYY with a major pharmaceutical company that has a strong presence in metabolic diseases and that is capable of conducting late-stage clinical development and worldwide commercialization in the obesity space.