UPDATE 2-FDA holds up Merck KGaA's multiple sclerosis pill

* FDA issues "refuse to file" letter for cladribine tablets

* Merck aims to resubmit application after talks with FDA

* Second regulatory setback this month

* Merck KGaA shares down 4.5 percent

(Adds market reaction)

FRANKFURT, Nov 30 (Reuters) - U.S. drug regulators have held up an application from Merck KGaA (MRCG.DE) to bring its multiple sclerosis (MS) pill cladribine to the market, the German group's second regulatory setback this month.

The U.S. Food and Drug Administration (FDA) has issued a "refuse to file" letter in response to Merck's application for cladribine, which would be the first oral treatment against the debilitating disease.

The FDA issues such letters when it finds a new drug application is incomplete.

"The company will work closely with the FDA to fully understand FDA's concerns and define a path forward for a successful resubmission of this application at the earliest point in time," a company statement said on Monday.

A Merck spokesman gave no more details.

The hold-up wrecks a best-case scenario outlined by the head of Merck's drugs unit this month in which the pill would come to the U.S. market in the second quarter of 2010. [ID:nWEA9264]

Merck shares fell 4.5 percent to 62.54 euros by 1400 GMT, the leading decliners among German blue chips.

"This will certainly delay market entry and the amount of time will depend on the full nature of the required actions, which is not yet known to us," DZ Bank analysts Elmar Kraus and Thomas Maul wrote in a note to clients.

"The time advantage Merck had over its main competitor in that field, Novartis, should now be gone," they added.

Merck submitted its application for U.S. approval at the end of September, two months after regulatory filing in Europe. [IDn:nLN726496]

Swiss rival Novartis (NOVN.VX) is planning to seek U.S. and European approval for an MS pill known as FTY720 at the end of this year.

Cladribine and FTY720 are expected to take a sizable chunk of the $8.6 billion market for MS treatments, now dominated by injectables from Teva (TEVA.O), Biogen Idec (BIIB.O), Bayer BAYG.DE and Merck KGaA itself.

Merck has declined to estimate annual peak sales for the pill but analysts at Piper Jaffray have predicted 626 million euros ($941.3 million), and other brokerages expect more.

Biogen Idec is also developing an oral MS drug, known as BG-12, but it is not as far advanced as Merck or Novartis.

The German drugmaker saw its attempt to market its cancer drug Erbitux for use against lung cancer shot down by a European panel earlier this month. [ID:nLJ183372] (Reporting by Michael Shields, Frank Siebelt and Tyler Sitte; Editing by David Cowell) ((michael.shields@thomsonreuters.com, Reuters Messaging: michael.shields.reuters.com@reuters.net; +49 69 7565 1266)) ($1=.6650 Euro)