Merck KGaA said on Wednesday the U.S. Food and Drug Administration (FDA) had paused the initiation of new patients on its multiple sclerosis evobrutinib drug, knocking the German drugmaker's share price.

Merck has been ahead in the race to develop a drug from the class known as Bruton's tyrosine kinase (BTK) inhibitors to slow the progression of nerve disease multiple sclerosis. But tolerability of the class has been a big concern for analysts.

Merck shares were 6.3% lower at 1037 GMT and slid to the bottom of Germany's blue-chip DAX index on news of the setback.

The FDA's decision, Merck said, was in response to laboratory results which suggested drug-induced liver injury during phase III studies. The two cases identified had been asymptomatic and the patients' liver enzymes had fully normalized after discontinuation of the study medication.

"Merck is working closely with the FDA to establish the best path forward for the benefit of patients in current and future trials with evobrutinib," it said in a statement.

The company must now place on hold the initiation of new evobrutinib patients and halt studies involving patients who have been taking the drug for less than 70 days.

The FDA's decision impacts just two patients. Recruitment for a phase III trial was already complete with 2,000 participants and an ongoing study is to continue as planned.

Merck expects to present the first data from that study in the fourth quarter of 2023.

A trial testing Sanofi's rival candidate tolebrutinib - from the $3.7 billion takeover of Principia Biopharma in 2020 - was put on partial hold by the FDA in June 2022 on concerns over harmful effects on the liver. That meant recruitment of new participants was stopped.

Others in the development race are remibrutinib from Novartis and Roche’s fenebrutinib.